Consumers still mistakenly believe the cost of living is running above the Government's target, a poll shows.

The quarterly survey of attitudes to inflation by the Bank of England shows that adults believe prices have risen by 2.8% over the last year.

But this is despite figures released last month which show the Government's official measure of inflation - the Consumer Prices Index - fell below its 2% target in July for the first time since March last year, to 1.9%.

This is a dramatic turnaround in the data as CPI actually touched its highest level in 10 years when it hit 3.1% in March of this year.

But while consumer perceptions of inflation are that CPI is still running higher than the Government wants, the questionnaire suggests they have experienced a slight easing off in prices.

People in May thought prices were up 3.1% on the year before, which was the highest since the survey began in 1999.

But the questionnaire in mid-August found that Britons believe shop prices will rise at a rate of 2.7% over the next year.

The Bank's survey, which quizzed more than 2,000 Britons, showed more than two thirds believed rates would rise again over the next 12 months, although this had dropped from 71% who saw a rate hike on the horizon in the last quarterly survey.

Global Insight chief economist Howard Archer said the Bank of England will probably be "disappointed" at the results, especially as it has raised interest rates five times since last August to bring inflation back under 2%.

The Bank of England governor Mervyn King recently suggested rates have hit the top end of the cycle to stand at 5.75%.

He even intimated that policy-makers could even vote to cut interest rates if the current turmoil seen in financial markets gets worse and puts the whole economy at risk.

However analysts believe the survey data may have put a dampener on any hopes for an early reduction in interest rates.

Mr Archer said: "Ongoing relatively-elevated inflation expectations highlight the fact that there are still significant medium-term inflation risks and reinforce our belief that the Bank of England will be very wary about any early trimming of interest rates."

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