FEARS of rising interest rates and petrol prices have trumped expectations of next month's tax cuts, driving down consumer sentiment to the lowest in the four-year history of a Sensis confidence gauge.

The findings echoed a survey of small and medium retailers, which found confidence dipping 8% and led the Australian Retailers Association to warn that businesses unable to contain costs would struggle.

The Sensis Consumer Report, to be released today, found confidence down 9 percentage points since March and 26 points since November. The report found 57% of Australians were confident about their financial future and 22% were worried, leading to a net result of 35%.

The May survey of 1500 people found the age group feeling the least confident were those in their 30s, who had a net confidence result of just 21%.

"Rising prices, including petrol, interest rates and the cost of living, is the reason most people are worried about their financial prospects," said report author Christena Singh.

Entertainment was the first expense to be cut for 22% of consumers, while dining out was first for a further 10%. Another 7% nominated clothes and accessories, with food next, on 5%.

Retailers are already feeling the effects of a slowdown, with a parallel Sensis survey charting the continued decline of confidence among small and medium traders.

The drop in anticipated profitability was most dramatic, with expectations for profitability growth for the June-August quarter falling to a net 2% of retailers, compared with 28% a quarter earlier.

Australian Retailers Association executive director Richard Evans said consumer spending cutbacks were forcing retailers to discount.

"There may be an increase in prices but they can't apply their normal mark-up to maintain margins because consumers simply won't pay," he said. "This is having a negative impact on their gross profit and explains why winter sales have started earlier than usual."

Though the slowdown in spending will hit retailers hard, it indicates the two interest rate rises in February and March are having an effect and lessens the likelihood of further rises later this year. The results confirm retail sales figures for April that showed sluggish spending.

Mr Evans predicted dampened demand might push some small retailers to the wall.

"Those that aren't highly skilled in retail in these hard times, who don't know how to cut back their expenses, who can't managed their costs very well, they will struggle and we we may see some casualties."