UK Public’s Inflation Expectations Ease, Offering Relief to Bank of England
The British public’s expectations for future inflation have decreased, according to a new survey by US bank Citi. This offers a sense of relief to the Bank of England, which is set to announce its 14th consecutive interest rate increase. The survey, conducted in July by Citi in collaboration with market research company YouGov, reveals a significant drop in the public’s expectations for inflation in the next 12 months. In June, this figure stood at 5.0%, but it has now fallen to 4.3%. Similarly, expectations for inflation in the next five to 10 years have also decreased slightly, from 3.3% to 3.2%.
Citi economist Benjamin Nabarro sees this reduction in short-term inflation expectations as a positive development, as it often plays a crucial role in wage setting. He anticipates that these figures will continue to decline in the coming months as headline inflation subsides. The Bank of England is closely monitoring inflation expectations as it grapples with long-term price growth pressures within the British economy.
This downward shift in inflation expectations may come as a relief to the Bank of England, which is expected to raise its benchmark interest rate by either a quarter or half a percentage point. The aim of this rate hike is to address the risks posed by an inflation rate that soared to 7.9% in June, nearly four times the Bank of England’s target.
The August interest rate decision is eagerly awaited by market participants, who are keen to ascertain the measures that the Bank of England will employ to manage inflationary pressures in the economy.
This news of decreased inflation expectations could have positive implications for businesses and individuals alike. Lower inflation expectations can lead to reduced pressure on wages, providing some respite for households grappling with rising living costs. Additionally, it might ease the burden on businesses striving to remain competitive amid challenging economic conditions.
Overall, the drop in inflation expectations is a welcome development and could indicate a promising trajectory for the UK economy. As headline inflation subsides, the Bank of England can maintain a vigilant approach to its monetary policy, aiming to strike a delicate balance between managing inflation risks and sustaining economic growth.
