By Chris Williamson, Chief Economist at Markit
(LONDON, ENGLAND) – Survey data collected by Ipsos MORI on behalf of Markit suggest that just over half of all households expect the Bank of England to raise interest rates within the next two years. Just over one-in-three expect rates to start rising within the next 12 months and one-in-five expect to see an increase by the end of 2013.
Only 2% thought that rates would increase within the next month.
Only 16% think that rates will only start to rise again after at least two years. A small minority, 5%, consider it most likely that the Bank will cut rates again to a new record low to stimulate the economy.
The survey data were collected between 10-15 July. The survey results are available for regions, household ownership and demographic categories on request.
The survey results suggest that the “forward guidance‟ given by the Bank of England after its July policy meeting has yet to filter through to households.
After its July monetary policy meeting, the first under new governor Mark Carney, the Bank of England’s Monetary Policy Committee took the unusual step of publishing a statement designed to reassure the markets, businesses and households that rates are likely to follow that path outlined in its latest forecast, which indicated that rates will not start rising for another three years. The Bank Rate has been stuck at an all-time low of 0.5% since March 2009. The majority of households are clearly not convinced.
On one hand, the survey results present the Bank of England with the challenge of better communicating the prospect of an extended period of low interest than the statement which accompanied the last policy meeting.
On the other hand, the survey also shows that an effective communication of the scope for interest rates to stay long for over a year could have a material impact on consumer behaviour, providing welcome reassurance that borrowers will continue to see low debt servicing costs, especially for mortgages, for longer than many thought likely.
Alongside low pay growth and high inflation, the survey suggests that the spectre of higher interest rates is a key factor restraining many of the UK’s 11 million mortgage holders from feeling comfortable about increasing their current spending.