- On average, in August, people thought the inflation rate was 5.2%. In July it was 2.2%.
- 55% of people said the interest rate on mortgages, loans and savings had risen over the past 12 months.
- In reality, between 15 August last year and this year, the average 2-year fixed rate mortgage deal has dropped from 6.79% to 5.66%. Meanwhile, the average rate on a 1-year fixed rate savings account has dropped from 5.27% to 4.52%.
- The average rate on easy access savings accounts is higher than a year earlier – up from 2.89% to 3.11%.
- 29% of people expect interest rates to rise over the next 12 months.
- The market is pricing in cuts.
The Bank of England has published its inflation attitudes survey for August: Bank of England/Ipsos Inflation Attitudes Survey – August 2024 | Bank of England
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“There’s no reason why absolutely everyone should be completely across inflation and interest rates on a daily basis. People have a lot going on, and sometimes keeping abreast of financial changes falls off the to-do list. However, if you’re saving, borrowing or investing, it’s worth making a date to check in once every few months, to make sure these things haven’t been quietly shifting while you were otherwise occupied – leaving your finances exposed.
When asked to estimate inflation, on average people over-estimated. This is understandable. Talk of higher inflation has been everywhere, and budgets are tight. So while people know inflation has fallen, they may not know how far. Meanwhile, when asked to estimate what’s happening with savings and mortgage rates, they assume they have risen. That’s not a surprise either. The Bank of England raised rates relentlessly for almost two years, and hit the headlines every time. The fact that the last rate hike was over a year ago is easily missed – unless you specifically keep an eye on it.
Risk to savers
This poses serious risks to people’s finances. If they’re savers, losing touch with falling interest rates means they may not spot when their bank cuts their rate, and it quietly dwindles away. They won’t realise they need to shop around, or that they could get a much better deal from an online bank or cash savings platform. If they over-estimate the potency of inflation, they might assume they need all their cash handy in a current account to cover their costs, so miss out on essential savings interest elsewhere.
If they have a mortgage, meanwhile, they may not appreciate how rates have been falling. If they’re on a variable rate deal, on the assumption that fixed deals are ruinously expensive right now, the fact they have fallen significantly in the past year is key. The high street giants have announced another raft of cuts this week, and there are now fixed-rate deals charging less than 4%.
Those with a remortgage looming may also have missed the good news – and could end up rolling onto a standard variable rate if they stick their head in the sand. The HL Savings & Resilience Barometer estimates that remortgagers will end up paying £65 a month more if they remortgage in the next 12 months, and while this will cause some financial headaches, it’s nothing like the nightmare they might have been dreading.
