Frustrations mount over Bank’s management of inflation

Some two in five (40%) people think the Bank of England is managing inflation badly, as it repeatedly increases the base rate in a bid to keep inflation down, the Bank’s internal Inflation Attitudes Survey has found.

The Bank base rate currently stands at 5.25%, and most seem resigned that there will be further increases. The next decision is on 21 September 2023.

CPI inflation currently stands at 6.8%, but people think it’s around 8.6%.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Inflation impatience is spreading. People are increasingly frustrated by the fact they’re having to live with horrible rises in interest rates, and yet still prices are rising at a rapid rate.

“If inflation figures increase slightly as expected next week, this is going to add insult to injury. Increases in the cost of fuel and alcohol are expected to mean a small bump in August’s inflation figures, which will help cement an expected interest rate rise the following day.

“It’s easy to see why people are getting frustrated. They actually slightly over-estimate how high inflation is right now. And although they expect it to drop in the next 12 months, they’ve been waiting for this to happen ever since rates started rising in December 2021 – almost two years ago.”

Coles explained why it’s taking so long for inflation to be curbed by the repeated base rate increases.

She added: “Half of people on the highest incomes are yet to spend their way entirely through their lockdown savings, so making debt more expensive isn’t having the impact it usually would.

“Then there’s the fact that the vast majority of the mortgage market is fixed. It means the impact of rate rises hit them hard, but incredibly slowly, so it takes years for the full impact of rises to filter through into the market.

“Then there’s the fact that the labour market has been so tight, which means companies are slower to lay people off.

“Even when they do, higher vacancy numbers mean more of them have been able to find work elsewhere, so it has taken a long time for the jobs market to weaken.

“In the interim, businesses remain under pressure to raise wages, which helps feed inflation.”