Public’s inflation outlook holds at four-year low
The public’s expectations for inflation over the next 12 months has held at their lowest level in more than four years, in sharp contrast to a recent rise in market expectations, Bank of England data has revealed.
Average expectations for inflation over the next 12 months remained at 2.7 per cent – the joint-lowest reading since August 2016 alongside November’s figure, based on a survey conducted in February.
Asked about inflation for the following year, the public saw it at 2.2 per cent, compared with 2.1 per cent in November, while longer-term inflation expectations held steady at 2.9 per cent, just above a five-year low recorded in August 2020.
Expectations for a move in BoE interest rates over the coming year were little changed from November. Some 35 per cent expected a rise – a low proportion by the standards of recent years – 16 per cent expected a cut and 35 per cent expected rates to stay the same.
BoE policymakers use the survey as a guide to whether there is likely to be pressure for bigger wage rises, something which would put upward pressure on prices across the economy.
Unlike the general public, financial markets have sharply revised up their expectations for medium-term inflation since the start of this year.
The rate of inflation priced into five-year inflation-linked British government bonds – which, unlike the BoE, uses the higher retail prices index measure – reached 3.34% on March 5, its highest since October 2019 and up from 2.8% at the start of 2021.
Britain’s inflation rate is expected to hit the BoE’s 2 per cent target in the coming months, but much of the rise will reflect last year’s pandemic hit and one-off changes to energy prices.
BoE Governor Andrew Bailey has sounded unfazed about the risk of an inflation overshoot, saying on Monday that the BoE’s task was to get inflation back up to 2 per cent and hold it there.