The Bank of England has published its inflation attitudes survey for February: Bank of England/Ipsos Inflation Attitudes Survey - February 2025 | Bank of England
Sarah Coles, head of personal finance, Hargreaves Lansdown: “People tend to over-estimate how high inflation is and underestimate how low interest rates are on savings and borrowing. It’s not a huge shock: they have busy lives and keeping on top of these things isn’t a huge priority. However, if you’re too far off, you could be in for a nasty surprise.
When asked to guess what inflation was in February, they picked an average of 4.9%. They knew inflation had fallen, just not how far. Meanwhile, when asked to estimate what’s happening with savings and mortgage rates, they assume rates have risen – when in reality, they have actually fallen a little.
Risk to savers
This poses risks to people’s finances. If they’re savers, losing touch with falling interest rates means they may not spot when their bank cuts their rate, and it quietly dwindles away. They won’t realise they need to shop around, or that they could get a much better deal from an online bank or cash savings platform. If they over-estimate the potency of inflation, they might assume they need all their cash handy in a current account to cover their costs, so they miss out on essential savings interest elsewhere.
If they’re expecting interest rates to rise in the coming year, it could mean they decide to stick with easy access savings. If they have cash they don’t need for a period, they might choose not to put it into a fixed rate account until savings rates rise. In reality, the market is expecting falls, and savings rates are likely to be on their way down, so this rise isn’t on the cards for a long time. They could end up waiting for well over a year, or fixing at a lower rate rather than a higher one.
If they have a mortgage, meanwhile, they may not appreciate how rates have been falling. Between February last year and this year, the average 2-year fixed rate mortgage deal has fallen from 5.63% to 5.52%. Those with a remortgage looming could end up rolling onto a standard variable rate if they assume fixed rates are still back at the levels we saw a year ago, and stick their head in the sand. This will hit those with the biggest loans the hardest. The HL Savings & Resilience Barometer shows that this includes high-earning parents who already have average mortgage payments of £1,163, so a hike could be particularly painful for them.”
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