Higher rates expected by consumers

The survey of 2,000 consumers in January, found a growing number believe interest rates will rise over the next 12 months. The balance of consumers who said interest rates would be higher, rather than lower, in a year's time rose for the second consecutive month in January to 24 per cent, up 4 per cent from December. Although this was an increasing trend, it was far from a majority opinion.

January's aggressive discounting on the high street encouraged fewer consumers to report prices rose, rather than fell, during the last year. The balance of consumers who thought prices rose, rather than fell, during the last 12 months fell by 29 per cent to 33 per cent in January; the lowest figure since the survey began in 2004.

Consumers also lowered their inflation expectations in January. When asked what the official rate of inflation would be in year's time, consumers estimated it to be 4.3 per cent, down from 4.6 per cent in December.

Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: "The financial markets expect the record low interest rates to remain in place for some time. But consumers increasingly believe the low rate environment won't last for long and are preparing for them to rise.

"Looking ahead to higher rates is not a bad thing; consumers are less likely to struggle when rates eventually do rise again, once the economy is recovering."