Interest rates across a number of financial products, including savings accounts and mortgages, are at rock bottom levels at the moment as the Bank of England continues to keep the base rate at 0.1 percent. Many argue keeping rates this low is unsustainable but new research has shown consumers may not cope with an increase.
Recently, Ipsos MORI interviewed a representative online sample of 2,100 British adults aged 16-75 between June 20-21, 2021.
The results suggested a rise in interest rates could lead to financial hardship for many.
At least half of Britons said they would be worse off than they are today (55 percent), that they would find bills a real burden (52 percent) and they would start to find themselves financially stretched (51 percent), should interest rates double from the current base rate.
More than four in 10 (44 percent) would have to use savings to make ends meet, while 42 percent said this is unlikely.
Nearly six in 10 (56 percent) said they would not be able to save more should interest rates double while less than a third say they would be better off than they are today (31 percent).
Half (53 percent) of Britons think the average interest rate since 1975 is three percent or less – the real average is higher at six percent.
While the average of answers given is correct, only four percent were exactly right, choosing six percent as the average Bank of England base interest rate.
Just three in 10 (31 percent) knew the current rate, while one in five (18 percent) said they didn’t know. Twenty-two percent incorrectly believed the current base rate is 0.5 percent while around one in 10 select either one percent (eight percent) or two percent (11 percent).
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Consumers were also assessed on their inflation knowledge and preparedness.
The data showed 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 in the past two decades.
The most common answer given, however, is much more accurate, 15 percent of respondents think inflation has only ever reached five percent in the last 20 years, while 11 percent said a level of three percent and one in 10 (nine percent) say inflation peaked at four percent in this time period.
Despite misconceptions in levels of inflation, a strong majority of Britons say they are confident they would be able to explain what inflation is, almost two-thirds (64 percent) say they can define it, compared to a third (32 percent) who would not be confident doing so.
Almost two-thirds (64 percent) believe it is true that the value of savings in real terms would go down if rates increased while six in 10 (58 percent) say interest rates of savings accounts would increase. Only one in five (20 percent) said the cost of living would become cheaper should inflation rise, almost six in 10 (57 percent) said this is false.
Flora Vieites, a Director of Financial Services at Ipsos MORI, commented on the results: “While only a third of people can accurately quote what the current rate is, it’s great to see that most would know what the impact of higher inflation would have on their circumstances.
“Given our new found freedoms, people are likely to be out spending, which may bring inflation back into line, however should that not be the case and we find inflation continuing to rise, and the furlough scheme shortly coming to an end, the proportions of those who are financially vulnerable are likely to increase.
“For many the boom and bust years of inflation are a distant memory, while we can hope it stays that way, this research shows that while people may have got used to low inflation and low interest rates, we need to think about who could be affected if the situation changes.”