Four out of five UK consumers believe interest rates will rise again - fuelling a slump in confidence about job security, according to the latest Consumer Barometer from Lloyds TSB Corporate Markets.

In a survey of 2,000 consumers, carried out after the MPC's decision to hold rates on June 7th, 80% said they expect interest rates to be higher in 12 months time. This compares with 12% expecting rates to remain steady and just 5% anticipating a fall during the next year. This represents a balance of 75%, up from 70% in May and tallies with general financial markets' opinion that base rate could rise to 6.25% early in 2008.

The expectation of rate hikes hasn't been fuelled by a rise in inflation fears, since the balance of firms expecting prices to rise rather than fall this year remained steady at 74% in June. However, one of the consequences of this is that consumers' confidence about their own job security has taken a big tumble. Just 18% of them feel more secure in their own job than a year ago - the lowest figure seen since June 2006. And representing an all-time survey low.

Yet, the unease consumers feel about their own job prospects doesn't reflect their view about the UK employment situation in general. When asked whether general employment prospects in the UK are better or worse than 12 months ago, the number citing an improvement rose slightly from 14% to 15% and those expressing pessimism fell from 36% to 32%.

Whilst this represents a negative balance i.e. more people think things are getting worse than better, the net figure (-17) is still the most optimistic people have felt since December 2005. This may reverse quickly if fears about their own employment situation begin to materialise, however.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "Consumers have been holding their breath waiting for another interest rate rise and the majority obviously see it as a fait accompli.

"However, the combination of interest rate hikes and consumers' correct expectation that prices are on the rise means the spectre of unemployment is now beginning to weigh more heavily on respondents."

Williams says this realisation is another sign that the last few rate rises are beginning to have an impact. The next stage is for these fears to translate into consumers actually cutting back on their spending and so weakening economic growth in the manner that, after all, the monetary authorities want to see and, in our opinion, will see in the months ahead.

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