40% of Brits expect interest rate rise but inflation to be lower

Bank of England

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."

Your Comments

Inflation for most is well above the figure given because the reductions tend to be on items most buy rarely. The RPI was a better indicator than CPI which makes assumptions about buying habits which are not true.