40% think the Bank of England is managing inflation badly

19th September 2023

New research by Hargreaves Lansdown has found that 40% of people think the Bank of England is managing inflation badly, higher than at any other point this millennium.

The research showed that 63% expect interest rates to rise over the next 12 months – up from 57% in May. 19% expect rates to remain the same.

Whilst 13% of people think rates should rise in the best interests of the economy (40% say they should fall), and 25% of people say it would be better for them if rates went up (34% say it would be better if they fell).

People estimate inflation at 8.6% (it’s currently 6.8%). Over the coming year they expect it to drop to 3.6%.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Inflation impatience is spreading. People are increasingly frustrated by the fact they’re having to live with horrible rises in interest rates, and yet still prices are rising at a rapid rate.”

“If inflation figures increase slightly as expected next week, this is going to add insult to injury. Increases in the cost of fuel and alcohol are expected to mean a small bump in August’s inflation figures, which will help cement an expected interest rate rise the following day.”

“It’s easy to see why people are getting frustrated. They actually slightly over-estimate how high inflation is right now. And although they expect it to drop in the next 12 months, they’ve been waiting for this to happen ever since rates started rising in December 2021 – almost two years ago.”

“For the Bank of England, the challenge is clear. Slowing the economy by pulling the lever of interest rates is always like trying to slow a supertanker. You can expect to travel an awfully long way before your actions take effect. This time, however, the ship has reached a new time zone without inflation getting close to its target.”

“Part of the delay is down to the fact that, as the HL Savings & Resilience Barometer shows, the half of people on the highest incomes are yet to spend their way entirely through their lockdown savings, so making debt more expensive isn’t having the impact it usually would. Then there’s the fact that the vast majority of the mortgage market is fixed. It means the impact of rate rises hit them hard, but incredibly slowly, so it takes years for the full impact of rises to filter through into the market.”

“Then there’s the fact that the labour market has been so tight, which means companies are slower to lay people off. Even when they do, higher vacancy numbers mean more of them have been able to find work elsewhere, so it has taken a long time for the jobs market to weaken. In the interim, businesses remain under pressure to raise wages, which helps feed inflation.”

“Despite the bump next week, we’re expecting inflation to fall towards the end of the year. We’re starting to see labour market weakness emerge, and there are signs that the economy is shrinking. The question is whether getting the fall in inflation we’ve been waiting for comes at a cost that’s just as difficult to live with. Lower inflation that comes hand in hand with a shrinking economy and job insecurity raises a huge number of problems of its own.”