Interest rate warning: Britons would be hard pressed if rates doubled as inflation fears loom | Personal Finances | Finance
Interest rates on a number of financial products, including savings accounts and mortgages, are currently at lows as the Bank of England continues to hold the base rate at 0.1 %. Many argue that keeping rates this low is not sustainable, but new research has shown consumers may not face an increase.
Recently, Ipsos MORI surveyed a representative online sample of 2,100 UK adults aged 16-75 between June 20-21, 2021.
The results suggest that a rise in interest rates could cause financial hardship for many.
At least half of Britons said they would be worse off than they are today (55%), find the bills a real burden (52%) and start to run out of money (51%) if interest rates doubled. of the current base rate.
More than four in ten people (44%) are expected to use their savings to make ends meet, while 42% said it is unlikely.
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Almost six in 10 (56%) said they would not be able to save more if interest rates doubled, while less than a third say they would be better off than today (31%).
Half (53 percent) of Britons think the average interest rate since 1975 has been three percent or less – the actual average is higher at six percent.
Although the average of the answers given was correct, only four percent were exactly correct, choosing six percent as the base average interest rate of the Bank of England.
Only three in ten (31%) were aware of the current rate, while one in five (18%) said they did not know. Twenty-two percent mistakenly thought the current base rate is 0.5 percent, while about one in ten selects either one percent (eight percent) or two percent (11 percent).
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Consumers were also assessed on their knowledge of inflation and their preparation.
Data showed that, on average, Britons believe the highest level of inflation in the UK since 2001 is 10 percent, in reality inflation has only reached 5.2 percent over the course of of the past two decades.
The answer most often given, however, is much more precise, 15 percent of those polled think that inflation has never reached five percent in the past 20 years, while 11 percent said a level of three percent and one in 10 (nine percent) says inflation. peaked at four percent during this period.
Despite misconceptions about inflation levels, a strong majority of Britons say they are confident they can explain what inflation is, nearly two-thirds (64%) say they can define it, compared to one-third ( 32%) who are not sure they are doing so.
Almost two-thirds (64%) think it is true that the value of savings in real terms would decline if rates were to rise, while six in 10 (58%) say that interest rates on bank accounts savings would increase. Only one in five (20%) said the cost of living would become cheaper if inflation rose, almost six in 10 (57%) said it was wrong.
Flora Vieites, Director of Financial Services at Ipsos MORI, commented on the results: âWhile only a third of people can accurately quote the current rate, it is great to see that most would know what the impact of inflation would be. higher on their circumstances.
“Given our newfound freedoms, people may run out of spending, which can bring inflation down to an even level, but if that is not the case and we see that inflation continues to rise and as the leave scheme is coming to an end soon, the proportions of those who are financially vulnerable are likely to increase.
“For many the years of booming and falling inflation are a distant memory, although we can hope they will be, this research shows that while people have become accustomed to low inflation and low interest rates, we need to think about who might be affected if the situation changes.