Thursday, October 6, 2022

UK public’s inflation expectations jump in July

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© Reuters. FILE PHOTO: The Bank of England can be seen as people cycle through the City of London financial district, in London, Britain, June 11, 2021. REUTERS/Henry Nicholls/File Photo

By David Milliken

LONDON (Reuters) -The British public’s expectations for inflation over the coming year jumped in July in response to recent rising prices,although longer-term expectations remained stable, a monthly survey showed on Tuesday.

The Citi/YouGov survey showed public inflation expectations for the next 12 months rose to 3.1% in July from 2.8% in June, taking this measure further above its long-run average though below December’s peak of 3.8%.

British consumer price inflation hit a three-year high of 2.5% in June and the Bank of England looks set to raise its near-term inflation forecasts on Thursday, though it is likely to stress that the increase will be temporary.

Longer-term inflation expectations for the next five to 10 years held steady at 3.4%.

Citi said the rise in short-run price expectations probably reflected fears of higher household energy bills later this year as well as the recent faster-than-expected rise in CPI due to higher oil prices and post-COVID supply-chain bottlenecks.

The BoE could draw some comfort from the fact that this had not yet fed into longer-run inflation expectations, but would need to be watchful that higher headline inflation later in 2021 did not push long-term price expectations higher.

“A marked increase here could yet force the Bank to tighten policy even if the recovery is incomplete,” Citi said.

The BoE looks at public inflation expectations as a guide to how businesses will set prices and the extent to which workers will push for bigger pay rises.

The survey also showed that an above-average percentage of people surveyed said they did not know how inflation would change in future, creating a greater chance of a shift in long-term expectations, Citi added.

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