The survey of 2,000 consumers in December found that just 44 per cent, a record low, believe prices will rise in 2009, compared to 58 per cent in November and 90 per cent in July. The balance of consumers that said prices would be higher, rather than lower, in 2009 fell 22 per cent to 62 per cent in December.
When asked to estimate the official rate of inflation in 12 months' time, consumers on average said it would be 4.6 per cent, down 1.1 per cent from 5.7 per cent in November. The latest official rate of inflation is 4.1 per cent.
Consumers continue to believe that interest rates will rise in 2009, despite the prevailing view in the financial markets that interest rates will fall below 2 per cent in the first quarter of 2009. The balance of consumers that expected interest rates to be higher, rather than lower, in a year's time doubled to 20 per cent, from 10 per cent in November.
Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: "The aggressive pre-Christmas discounting on the high street has encouraged consumers to set their price expectations low for the year ahead. This is a dramatic turn of events from the summer, when petrol prices were at their peak and the majority of consumers felt prices would continue to rise.
"But low price expectations do not necessarily mean consumers will increase spending in 2009. The expectation that interest rates are set to rise may mean that consumers don't have the confidence to spend, preferring to save for the years ahead instead."
