Spending plans have been cut sharply, as almost a quarter of households expect their finances to worsen in the next three months.
The consultants' Consumer Confidence Index, which combines confidence in the Government, household finances and job prospects, fell from 93.6 in June to 77.6 in September.
It is the worst level since the consultants began their survey in March 1991 and compares with a previous low point of 85.1 in December 1991.
'The key uncertainty now undermining consumer confidence seems to be the fear of an increase in interest rates,' the report said.
'For the moment it is not important whether interest rates are increased to defend sterling. The very fact that an increase is possible is enough to dampen any likelihood of a recovery in consumption this year.'
The number of households expecting their financial situation to worsen has risen from 13 per cent of those surveyed in June to 23 per cent in September, reflecting a widespread fear that interest rates could rise soon.
The same consultants' index of consumption activity, based on a range of expectations across a wide range of goods and services, fell from 97.4 in June to 91.9 in September, compared with 95.2 a year ago. The proportion of people surveyed expecting employment at their places of work to fall in the next three months rose from 26 to 30 per cent between June and September and those expecting a rise in the payroll fell from 21 to 13 per cent.
Two-thirds of those surveyed now think that the end of the recession is more than six months away compared with 46 per cent a year ago and 60 per cent in June.
A small increase in consumer credit applications in the retail sector in June was not sustained during July, when demand fell by 1.1 per cent, according to Infolink.
Home loans applications fell by 12.6 per cent and demand for new loans by 8.5 per cent.Reuse content