People in the dark about inflation and interest rates costs

The Bank of England has published its inflation attitudes survey for August showing that people thought the inflation rate was 5.2%. In July it was 2.2%.

The survey also showed that 55% of people said the interest rate on mortgages, loans and savings had risen over the past 12 months.

In reality, the average 2-year fixed rate mortgage deal has dropped from 6.79% to 5.66%. Meanwhile, the average rate on a 1-year fixed rate savings account has dropped from 5.27% to 4.52%. 29% of people expect interest rates to rise over the next 12 months.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “There’s no reason why absolutely everyone should be completely across inflation and interest rates on a daily basis. People have a lot going on, and sometimes keeping abreast of financial changes falls off the to-do list. However, if you’re saving, borrowing or investing, it’s worth making a date to check in once every few months, to make sure these things haven’t been quietly shifting while you were otherwise occupied – leaving your finances exposed.

“When asked to estimate inflation, on average people over-estimated. This is understandable. Talk of higher inflation has been everywhere, and budgets are tight. So while people know inflation has fallen, they may not know how far. Meanwhile, when asked to estimate what’s happening with savings and mortgage rates, they assume they have risen. That’s not a surprise either. The Bank of England raised rates relentlessly for almost two years, and hit the headlines every time. The fact that the last rate hike was over a year ago is easily missed – unless you specifically keep an eye on it.”