Public dissatisfaction over Bank of England's grip on inflation

Myron Jobson comments on the Bank of England Inflation Attitudes Survey.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “There appears to be a great sense of dissatisfaction with the UK’s central bank over its grip on inflation among the members of the public who participated in the poll.

“The Bank bravely asked the public to judge its effectiveness at controlling interest rates, and their response is by no means a glowing endorsement. The net satisfaction balance, the proportion satisfied minus the proportion dissatisfied – was -13%, down from -4% in February 2023. The BoE would argue that upping interest rates is the most powerful weapon to combat rising prices, but the persistence of high inflation has not put the BoE in the best light.

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“While the public’s expectations on inflation by May next year is broadly in line with the BoE’s own forecast, when asked about expectations of inflation in five years’ time, respondents gave a median answer of 3%. The reality is no one short of a functioning crystal ball could provide an accurate answer, but the fact that respondents gave an average figure that is one percentage point higher than the BoE’s target base rate of 2% is hardly a vote of confidence in the UK’s central’s bank’s ability to keep a handle on inflation.

“It is interesting to note that the survey found that 31% of respondents said it would be better for them if interest rates were to go down, while 26% said the opposite - indicating that cost-of-living experiences are polarised. Aspiring homebuyers and those approaching the end of their mortgage are likely to be among those hoping for an end in the interest rate rise cycle. Consecutive hikes to interest rates and the prospect of more in the near future has sent mortgage rates through the roof, exacerbating the affordability burden at a time when many are making stark changes in their spending habits to stay on top of rising prices. On the flip side, the uptick in the base rate has dragged savings rates from the doldrums. Savings rates are attractive with the top deals offering north of 5% in interest - although higher inflation erodes the value of the savings that you have.

“The results turn up the heat on the Monetary Policy Committee, which is expected to bump interest rates further at its meeting next week.

“It is important to note that the survey was conducted before recent inflation and jobs data sent leads to a new consensus in the financial market that interest rates could surge higher than initial forecasts - with a significant knock-on effect in mortgage costs. More broadly, while inflation has shown signs of cooling, we are still paying more on housing, energy, food and transportation than we did in yesteryear. This leaves a dwindling amount of money available for discretionary spending, savings and investments.”