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People overestimating rate of inflation

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09/03/2018
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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