Consumers expect interest rates to rise

Kay McLellan

June 12, 2006

The survey among 2,000 consumers shows that the numberof respondents expecting interest rates to rise during the coming year rose from 59 per cent in April to 66 per cent in May – the highest since April 2005. The balance figure – those expecting rates to rise minus those expecting a fall – was 59 per cent – also the highest balance figure since April 2005. Only 7 per cent of consumers now believe rates are likely to fall during the next 12 months.

Consistent with the belief that rates will rise, consumers’ price expectations for the next 12 months eased for a third successive month in May. The percentage expecting prices to rise (78 per cent) fell below 80 per cent for the first time in the last four months.

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

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