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40% think interest rates will increase

A GROWING number of people expect base rates to rise from their record low of 0.5% within the next 12 months, even though they view the inflation outlook as more favourable.

According to a survey published yesterday by the Bank of England, 40% of people expect rates to rise over the next 12 months.

In the previous quarterly survey, 34% predicted a rise in rates on a 12-month view.

However, people's expectations of inflation over the coming 12 months were sharply lower than in the previous quarterly survey.

The median expectation of those surveyed between February 6 and 18 was for an annual UK consumer prices index inflation rate of 2.8% over the coming 12 months. While this is much higher than the 1.9% annual CPI inflation figure reported by the Office for National Statistics for January, people had in the previous survey forecast a rate of 3.6% over the coming year.

Howard Archer, chief UK economist at consultancy IHS Global Insight, described the fall in inflation expectations as "welcome, pleasing news" for the Bank.

The survey also showed many people were bullish about the prospects for UK house prices, which have been supported by major moves by the Coalition Government to boost the residential property market.

While 18% of respondents expected no change in house prices over the coming 12 months, 31% forecast a rise of up to 5%, 21% predicted an increase of between 5% and 10%, 11% anticipated a rise of more than 10%, and the remaining 20% either thought prices would fall or said they had no idea.

People in south-east England were notably bullish about house prices.

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