Consumers await interest rate hike

Angela Faherty

June 17, 2006

The survey of 2,000 consumers showed 66 per cent of respondents in May expected interest rates to rise during the coming year, up from 59 per cent in April. This is the highest increase since April 2005. Only

7 per cent of consumers believed rates were likely to fall during the next 12 months.

At the same time, consumers’ house price expectations had eased. For the first time in four months, the percentage of consumers who expected prices to rise fell below 80 per cent to 78 per cent.

Trevor Williams, chief economist for Lloyds TSB Financial Markets, said: “Although the Monetary Policy Committee (MPC) kept rates on hold last week, a hawkish quarterly Bank of England Report in May and the first vote by an MPC member for a rate rise since May 2005, hinted at the first nudge towards a 25 basis point rise in the final quarter of the year. This latest survey indicates households across the UK are bracing themselves for the inevitability that the next rate move will be a rise.”

Colin Snowdon, managing director for Freedom Lending, believes the news is a reflection of consumers picking up on heavy media coverage. He said: “What’s more interesting is consumers don’t think the bottom will fall out of the market. It’s very encouraging and must point to an underlying belief in the strength of the property market.”

Steve Brockman, director of A2B Mtg Co Ltd, commented: “Fixed rates are going up, so most people think the Base Rate will follow. While I think interest rates will rise, they will probably drop back down and won’t go too crazy.”

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