Consumers expect a slight interest rate rise

Stephan Shakespeare
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THE UK Consumer Prices index (CPI) annual rate of inflation rose to 4.5 per cent in April, up from four per cent in March and is now at its highest level since October 2008.

This will increase the pressure on the Monetary Policy Committee to raise interest rates and a look at the YouGov SixthSense report on the latest Bloomberg/YouGov Household Economic Activity Tracker (HEAT) does little to ease concerns about a prolonged period of inflation. We can see that people are noticing prices going up and inflationary expectations remain high.

Already over half of people are becoming more price conscious when shopping, not surprising when you consider that only 13 per cent expect cash available for household spending to increase over the next 12 months (42 per cent expect it to decrease) but eight in 10 expect prices to rise over the next year. Over half of those expect them to rise by five per cent or more.

The challenge for the MPC is that although general economic confidence did improve over the last month it still remains very low (-24) and they will fear that an interest rate rise will reverse the minor gains that we have seen. Perhaps though the public has already factored a rise in; three quarters expect rates to go up over the next year but most do expect that rise to be slight. Quantifying that – the median expectation is for interest rates to be at 1.5 per cent this time next year.

Not an easy job then but the public views that might impact the decision are; high inflationary pressures, low consumer confidence and a slight interest rate rise over the next year priced into expectations.

Stephan Shakespeare is chief executive of YouGov