40% of Brits expect interest rate rise but inflation to be lower
Some 40% of Britons expect interest rates to rise over the next 12 months even though inflation forecasts have fallen, according to a Bank of England (BoE) survey.
The number of people expecting the base rate to rise over the next year increased from 34% in November.
Looking forward one year, 50% of respondents expected it to be between 0 and 1%; 35% expected between 1 and 2%; and 8% expected between 2 and 3%.
The Banks's research also revealed people think inflation is higher than it really is. In mid-February, the Bank's latest consumer prices index measure of inflation stood at 1.9%. But when people were asked to give the current rate, on average they put the figure at 3.5%.
While their figures were out, people said they expected inflation to fall over the coming year to 2.8%, compared to the 3.6% level they had predicted in November.
Asked what they would do in the light of their expectation of inflation over the next 12 months, 49% of respondents said they would shop around for better value goods and services, while 34% said they would cut back on spending and save more.
Meanwhile 13% said they would look for a different or second job, or work more hours, 7% would move savings out of bank and building societies and into other assets and 4% said they would bring forward major purchases.
However, nearly a third (32%) said they would take no action at all.
Feeling the pinch
William Hunter, director of Hunter Wealth Management, said: "The fact that on average people think inflation is 3.5%, when it is now below target, suggests that many of us are still feeling the pinch.
"Wage stagnation has certainly played a big part in all this. Inflation may be coming down but household incomes are often still static. Things may be marginally cheaper on the shelves and at the pumps but it's still not feeling that way to most.
"Even though inflation is now below target, savers, pensioners and people on a fixed income are still struggling because interest rates are so phenomenally low, real returns remain elusive and to get them you still have to take on more risk."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.