UK public inflation expectations at record high for coming year: BOE

THE British public’s expectations for inflation over the coming year rose to a record high last month, although longer-term expectations eased from previous multi-year highs, a Bank of England (BOE) survey showed on Thursday (Sep 15).

Public satisfaction with the central bank’s control of inflation also fell to its lowest since the survey started in 1999, giving policymakers food for thought as they prepare to announce their next interest rate decision on Sep 22.

The BOE survey took place from Aug 5-8 - just after the BOE raised interest rates by half a percentage point for the first time since 1995, but before data showed consumer price inflation hit a 40-year high of 10.1 per cent in July and steps by new Prime Minister Liz Truss to cap household energy bills.

Expectations for inflation “over the coming year” rose to a record 4.9 per cent form 4.6 per cent in the last survey in May, but those for “the twelve months after that” dropped to 3.2 per cent from 3.4 per cent, which had been the highest since 2013.

Expectations for inflation in 5 years’ time fell to 3.1 per cent from 3.5 per cent, below the survey’s long-run average.

The BOE focuses more on medium-term inflation expectations than those for the short term, which tend to be influenced more by recent moves in headline inflation, rather than longer-term views which the BOE thinks influence businesses’ price-setting decisions and wages.

The fall in medium-term expectations in the BOE survey contrasts with the trend in a survey conducted by US bank Citi on Aug 24-25, which showed long-run expectations rose to a record 4.8 per cent in August.

Economists polled by Reuters expect the BOE to raise interest rates by half a percentage point to 2.25 per cent next week, while financial markets think a bigger increase to 2.5 per cent is more likely.

Thursday’s survey showed 33 per cent of the public were unhappy with how the BOE was setting interest to control inflation, versus 25 per cent who were satisfied, giving a net satisfaction of -7 per cent, the lowest on record. REUTERS