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People overestimating rate of inflation

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The latest Bank of England inflation attitudes survey shows that people are generally overestimating the current rate of inflation.

The survey showed that people believe inflation is currently at 3.1% on average, compared to 3% in reality, the highest in the poll since August 2014 and up from 2.9% in November. The survey also showed that most are expecting higher inflation in the longer term – those surveyed expect inflation to sit at 3.4% in five years’ time. This was marginally lower than the last survey in November.

Most recognise the impact of higher prices on the economy, with 52% saying the economy would end of weaker if prices started to rise. Just 8% believe it would be stronger.

Most believe the current inflation target is ‘about right’ (51%). Only 40% said that interest rates had risen over the past 12 months (they rose in November), but 58% expect rates to rise over the next 12 months, down from 63% in December. People are mixed on whether interest rates should rise/fall or stay where they are – 23%, 15% and 34% respectively.

Surprisingly, only 27% of respondents said it would be better for them if interest rates were to go down, up from 25% in November. This will largely depend on whether you are a saver or a borrower. Savers would benefit from higher interest rates, while borrowers would pay less if rates were low.

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