Britons' interest rate hike expectations rise, survey reveals

Interest rate hike expectations for the next year among the general public in Britain have risen, according to a survey by the Bank of England and TNS on Friday.

The survey showed 41% of Britons believe the BoE will raise interest rates over the next 12 months, compared to 38% in a central bank's February survey. The percentage of those who believe rates are unlikely to remain unchanged fell to 32% from 36% in February.

Most respondents continued to believe that interest rates should be held at 0.5% when asked what would be "best for the economy" – with 37% in favour of keeping rates unchanged, slightly down from 38% in the previous survey.

It compared to 21% who reckon rates should be raised, unchanged since February’s survey, while 16% of respondents believed that rates should be cut, up from a previous 14%.

"On the assumption that the UK votes to stay in the EU, we expect the Bank of England’s eventual next move will be to raise interest rates from 0.50% to 0.75% – but not until May 2017," said Howard Archer, chief UK and European economist at IHS Global Insight.

"Further out, we see interest rates only edging up to 1.00% at the end of 2017 and to 2.00% at the end of 2018.

The latest survey also showed median inflation expectations over the coming year were 2.0%, compared to 1.8% in February, as oil prices begin to turn higher.

The Bank of England is targeting 2% inflation. Most respondents in the latest BoE survey believed the central bank’s inflation target was "about right" with 54% of that view, compared to 52% in the prior survey. The percentage of those who believe the target was "too high" or "too low" were 22% and 7% respectively.

Britain’s main measure of inflation, the consumer prices index, fell from 0.5% in March to 0.3% in April, according to the Office for National Statistics in May.

"We suspect that the UK economy will strengthen in the second half of the year, assuming that there is a vote to stay in the European Union," Archer said.

"Furthermore, we expect consumer price inflation will trend gradually higher during the second half of the year and that there will also be a gradual pick-up in earnings growth due to the tightness of the labour market and April’s introduction of the National Living Wage."

Briton votes on its European Union membership on 23 June.