Public confidence in the Bank of England reached a seven-year low in November as criticism of its handling of the Northern Rock crisis hit home.
The Bank's latest inflation attitudes survey - taken before last week's interest rate cut - showed public satisfaction with its rate-setting policies to control inflation at its lowest level since May 2000.
Only 31 per cent were happy with the way the bank is 'doing its job to set interest rates to control inflation' - down from 32 per cent in August.
Respondents also believe that inflation is running at 3.2 per cent - well above the official Consumer Prices Index benchmark, which currently stands at 2.1 per cent and up from 2.8 per cent in the August survey.
Managing inflation perceptions is crucial to the Bank because expectations of higher prices will feed into wage demands, leading in turn to further inflationary pressures.
But the 2,000 people surveyed last month also expect inflation to reach three per cent next year - a record for the study and well above the Bank's two per cent target for CPI.
The public view of inflation in 2008 is sharper than the Bank's own predictions, which see the rise in the cost of living remaining slightly above target next year, before slowing economic growth and rate cuts bring prices back in check.
Global Insight's chief UK economist Howard Archer said the survey would make "uncomfortable reading" for members of the Bank's Monetary Policy Committee.
He said: "With the critical early 2008 pay rounds looming and the labour market currently still tightening, the Bank will be particularly concerned that higher inflation perceptions and expectations will fuel markedly increased pay demands and settlements.
"The bank will be very wary of the risk of a wage-price spiral developing."
After last week's cut to 5.5 per cent the MPC is expected to act again to lower rates by February, although Mr Archer added that the move was "not a gimme" if the bank was still worried over inflation.
But a record 39 per cent of the public - responding before the MPC's move to ease the pressure on homeowners last Thursday - called for the Bank to cut borrowing costs, compared with 33 per cent in August, the survey also showed. Thirty per cent reckoned interest rates should 'stay where they are', compared with 35 per cent in August. Nine per cent thought rates should 'go up', compared with 12 per cent in August.
More than half - 52 per cent - of respondents still expected rates to rise during the next year, although this was a fall from the 69 per cent braced for an increase four months ago.
But 15 per cent see rates falling in the next 12 months, compared with four per cent in August.
Katie Teasdale, policy advisor at Birmingham Chamber of Commerce, said: "Confidence in the Bank of England has taken a hit because of the credit crunch and Northern Rock.
"People will be also be responding to mortgage concerns. There is a perception that sometimes the Bank is too inclined to be hawkish and look at inflation on its own.
"Recently there was concern that it wouldn't lower interest rates under any circumstances, but then they did.
"We were quite pleased with the reduction; if it it had been a 0.5 per cent cut it may have been too quick.
"We understand it is a difficult balance. What we want is a low inflation and a stable economy; stability is the key.
"I don't expect more interest rate cuts in January and February, I think the Bank will wait and see what happens before acting. The target for inflation is two per cent and we are at 2.1 per cent, which is better than people expected. Whether that is luck or good managment, time will tell."