By Mohammed Abbas

CORBY, England (Reuters) - A young man thrusts his fist in the air outside a crowded unemployment office in the working-class English town of Corby: "White power. We're victims in our own country. Get the foreigners out," he shouted, before joining the queue inside.

Outside, huddled jobseekers shared a cigarette.

"The Conservatives are crap, get them out," said unemployed Debbie Smith, 46. "They've put everyone in debt. They're just interested in making the rich richer."

Unemployment, benefit cuts and despair over Britain's flagging economy have translated into hatred of the government and of foreigners in Corby, making it likely the Conservatives will lose their hold on the town in a local vote next month.

That is bad news for Prime Minister David Cameron's center-right party as it prepares for national elections in 2015: Corby is the first parliamentary seat it has had to defend since coming to power at the head of a coalition government in 2010.

More ominously, the constituency of Corby - more accurately Corby and East Northamptonshire - has voted for the winning party in every national election since it was founded in 1983.

Corby, the constituency's urban center, is a drab town of pound shops and payday loan firms that has always leaned towards the opposition Labor party, while the surrounding rural areas in affluent East Northamptonshire are staunchly Conservative.

The constituency's incumbent Conservative representative Louise Mensch resigned in August to spend more time with her family, triggering a by-election expected to be held on November 15.

Since coming to power, the government's austerity program of cuts to public sector jobs and welfare spending has so far done little to turn around the struggling economy, while making the party even more unpopular in places like Corby.

While a recent run of upbeat data has bolstered expectations that Britain is emerging from recession, the economic outlook remains grim, with the International Monetary Fund this month predicting a contraction of 0.4 percent for 2012 and only a meager recovery next year.

Sticking to the austerity plan, Cameron has warned of more painful cuts to come. Corby already has one of the highest rates of home repossession in England and an unemployment rate well above the national average.

The fact that the cuts, brought in to fix a big budget deficit, have been devised by Cameron, educated at Eton College, an elite private school, and a cabinet stuffed with millionaires makes the austerity plan doubly grievous for struggling Britons.

The Conservatives have battled to shake off an image of elitism, an image compounded last week by the resignation of a senior minister over accusations he called police "plebs", an insult laden with snobbery and upper class condescension.

"I don't think the Conservatives know what's going on. I sell Mercedes Benz cars and do see a few of them. They seem so out of touch, out of this world," said car dealer Ben Jones, 36.

"What's going on with the economy doesn't affect them at all. One paid an extra 20,000 pounds ($32,000) just so he could get the car in the right color. These are the kind of people in government," he added.

THE RISE OF UKIP

A poll commissioned in August by Conservative Party grandee Michael Ashcroft found that Labor leads the Conservatives in the Corby and East Northamptonshire constituency by 15 percentage points.

Underscoring the vote's importance, both Cameron and Labor leader Ed Miliband have come to drum up support in recent weeks.

Out on the campaign trail leafleting Corby neighborhoods, Conservative candidate Christine Emmett remained upbeat.

"The campaign is going very well. We've got some great support. Our vote is holding up," she said.

Corby was hit hard when its steelworks closed 32 years ago, affecting thousands of Scottish migrants who had travelled to Corby seeking jobs. Many in the town still speak with Scottish accents, and the Scottish flag is ubiquitous.

Although investment has since poured in, the town has yet to fully recover.

As Emmett's campaign team left the street, one resident standing in his garden shouted in a thick Scottish brogue: "The Conservatives are a load of shit!"

But just a short drive away, the picture is dramatically different.

Across rolling countryside and past chocolate-box farmhouses, the pound shops of Corby give way to the boutique stores and gourmet food shops of Oundle, a small town where residents can buy a Le Creuset kettle for 45 pounds ($72).

The town has long been a Conservative stronghold, but even here the party could be in trouble.

"I've voted Conservative for 40 years, but I'm now thinking about voting UKIP. Oundle has always been a very Conservative area, but all I'm hearing from everybody is grumble grumble grumble," said retired legal secretary Margaret Marlow, 71.

"There's the EU, care for the elderly, the waste of money going in foreign aid," she added.

While Labor may score an easy win, the party many political pundits will be watching closely is the UK Independence Party (UKIP), which has surged in popularity in recent years among disaffected Conservative voters and other more rightist Britons.

Founded in 1993, the anti-European Union party scored a record share of the vote in English local elections in May, wooing Conservative voters and raising Conservative Party fears of a split in the right-wing vote in the 2015 national election.

EURO GRUMBLES

Many Britons, watching the euro zone debt crisis with alarm, see the EU as a spendthrift, ineffectual source of bureaucracy.

The government stresses that maintaining ties is essential, given that the EU accounts for about half of Britain's trade.

UKIP's pledge to yank Britain out of the EU appeals to Conservative voters exasperated with Cameron's repeated demurrals on the question of holding a referendum on membership of the 27-member bloc.

Cameron has pledged to redefine Britain's relationship with the EU at an unspecified date to claw back some powers from Brussels, then seek the public's "fresh consent" for the deal, but even some Conservative lawmakers see this as a fudge.

UKIP's pledge to "end mass, uncontrolled immigration" also taps into xenophobia stoked by the belief that immigrants steal jobs and burden the welfare system.

The party denies it is xenophobic, yet some voters with more illiberal views find UKIP appealing.

"I do believe UKIP will get a lot of votes in this by-election. If I vote for anybody right now it would be for UKIP," said dapperly dressed Guy Belcher, 74, at an Oundle cafe, adding that in some places "you don't see white taxi drivers anymore".

Ashcroft's poll predicts that eight percent of Conservative voters in the constituency would consider supporting UKIP.

In marginal seats such as Corby, every vote counts given that Cameron failed to secure an outright majority in 2010, making him one of the least electorally successful Conservative prime ministers of modern times.

Labor currently leads the Conservatives in national opinion polls by about nine percentage points.

"We should pinch Conservative votes. At the end of the day, we represent the Conservative view far better than the Conservatives," said feisty UKIP candidate Margot Parker outside her busy campaign headquarters.

"The by-election should be a slap in the face for the coalition. Half-term report: 'Not good enough'."

(Reporting by Mohammed Abbas; Editing by Giles Elgood)