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Consumers 'Predict Base Rate Increase'

Aug 18, 2007
The majority of consumers believe interest rates are set to increase, the results of a new survey have indicated. According to Lloyds TSB's Consumer Barometer, some 80% of Britons surveyed think that the base rate will rise over the next 12 months - which would consequently see the interest payable on secured loans increase for borrowers.

Meanwhile, some 12% of respondents claimed interest rates will stay consistent over the coming year, with five per cent predicting the base rate will fall. When these three groups were balanced together, the financial services firm indicated that overall 75% of consumers believe the rate of interest on UK loans will rise - compared to 70% of respondents from a same survey in May.

Trevor Williams, chief economist for 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." The survey was carried out following the decision by the Bank of England's monetary policy committee (MPC) to keep interest rates at 5.5 per cent for this month.

Mr Williams added that the effects of "the last few rate rises are beginning to have an impact" on consumers. He also suggested that the results of the survey match the financial industries' opinion that interest rates may reach 6.25 per cent in the early stages of 2008. Meanwhile, fears over base rate rises were reported to have attributed to a fall in job security.

Despite 57% of Britons said to be confident about their occupation, only 18% of consumers were reported to feel more secure about their job than they did this time last year - the lowest proportion ever recorded by Lloyds TSB. The study also indicated that 22% of respondents are less certain about their career prospects, with an unexpected loss of work potentially causing consumers' to struggle with debts, bill repayments and personal loans.

Figures from the financial firm also revealed that 78% of Britons believe that general costs are set to increase over the course of the next 12 months as believing that inflation costs will rise. About one in eight (16%) forecasted that prices will stay the same, with only four per cent voting for a fall. Predictions of an increased base rate also came across in a recent survey by the Confederation of British Industry (CBI). According to the organisation, interest rates are set to hit 5.75 per cent over the coming months before falling back down to 5.5 per cent.

Meanwhile, consumer spending growth is expected to drop to 2.1 per cent next year as Britons face increased pressure meeting repayments on personal loans. Ian McCafferty, chief economic adviser for the CBI, added that there was no need for interest rates to go up to six per cent.
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Abbi Rouse is the Editor in Chief for Essentially Home Loans where visitors can apply for cheap loans online. We also specialise in debt consolidation loans. Visit our site today http://www.essentiallyhomeloans.co.uk
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