THE British public’s expectations for future inflation fell last month, a survey by Citibank and YouGov has found.

The Bank of England (BOE) closely watches surveys of households’ inflation expectations. The central bank believes these can offer a guide to future wage demands and businesses’ ability to pass on higher costs.

Citi said the average expectation for inflation in five to 10 years dropped to 3.6 per cent in December, down from 3.9 per cent in November. It had peaked at 4.8 per cent in August, before the government announced plans to temporarily cap household energy tariffs. Before the pandemic, when consumer price inflation was broadly in line with the BOE’s 2 per cent target, these longer-term inflation expectations averaged between 2.9 per cent and 3.4 per cent.

Inflation expectations for the period 12 months forward dropped to 5.7 per cent in December, from 6.1 per cent in November. It peaked at 10.3 per cent in August.

Citi said the survey showed a reduced risk of a recent 41-year high inflation rate becoming entrenched. Ben Nabarro, an economist at the US bank, said: “Today’s data, especially the easing in long-term expectations, suggests that some of the upside risks that have stalked UK inflation expectations in recent months are beginning to soften.”

“It would be premature to declare victory. But this data points to a moderating risk of more embedded inflation through 2023,” he added.

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British consumer price inflation reached its highest level since 1981 in October at 11.1 per cent, before dropping to 10.7 per cent in November. The BOE said it expects inflation to remain high over the coming months, but to fall to about 5 per cent by late 2023.

Much of the surge in inflation reflected a jump in natural gas prices, after Russia invaded Ukraine in February 2022. But post-pandemic supply-chain bottlenecks, labour shortages and trade frictions caused by Brexit have also played a role. REUTERS