UK inflation expectations remain at five-year high
The British public’s expectations of inflation for 2019 stayed at their highest level in five years, new Bank of England data revealed today.
Read more: Inflation edges up from two-year low as food and alcohol prices rise
Britons expect the inflation rate – the speed at which prices increase over time – to be at 3.2 per cent over the coming year, the same rate that was predicted by the public in November.
Meanwhile, the percentage of the population expecting interest rates to rise in the next 12 months has fallen to 47 per cent from 53 per cent in November, the Bank of England said.
Asked what the current rate of inflation was by the Bank of England's survey, respondents gave a median answer of 2.9 per cent, compared to 3.1 per cent in November.
British consumer price inflation stood at 1.9 per cent in February in reality, up from a two-year low rate of 1.8 per cent in January.
Howard Archer, chief economic advisor at EY Item Club, said the data represented “largely disappointing news on inflation expectations for the [Bank of England’s] Monetary Policy Committee [MPC] to digest”.
“The MPC will likely have hoped that consumer price inflation falling back to a 25-month low of 1.8 per cent in January… would have led to a softening of near-term inflation expectations.”
If consumers expect future inflation to be high, they are more likely to spend their money now so as to avoid paying higher prices and to ask for wage increases, both of which may push up inflation.
Archer said: “Under normal circumstances, inflation expectations being at a five-year high may give the Bank of England a nudge towards raising interest rates sooner rather than later.”
However, “there is no way that the Bank of England is going to act on interest rates until the Brexit situation becomes clearer,” he said.
Read more: Bank of England holds interest rates amid Brexit deadlock
He said high inflation expectations “may well reflect suspicion that prices could be pushed up by a disruptive Brexit that causes sterling to fall markedly and push up import prices”.