Written by David Milliken
A survey by the Bank of England showed on Thursday that the British public’s expectations for inflation over the next year rose to a record high last month, although the long-term outlook fell from previous multi-year highs.
Public satisfaction with the central bank’s control of inflation has also fallen to its lowest levels since the survey began in 1999, giving policymakers material to think about as they prepare to announce the next interest rate decision on September 22.
The Bank of England survey was conducted August 5-8 – after the Bank of England raised interest rates by half a percentage point for the first time since 1995, but before data showed that consumer price inflation hit a 40-year high of 10.1% in July and steps by new Prime Minister Liz Truss to put an end to household energy bills.
Inflation expectations “over the next year” rose to a record 4.9% from 4.6% in the last survey in May, but expectations for “the twelve months after that” fell to 3.2% from 3.4%, which was the highest since 2013.
Expectations for inflation within five years have fallen to 3.1% from 3.5%, which is below the survey’s long-term average.
The BoE focuses more on medium-term inflation expectations than on short-term ones, which tend to be influenced more by recent moves in headline inflation, rather than long-term opinions that the BoE believes influence companies’ decisions about pricing and wages. .
The drop in medium-term expectations in the Bank of England survey contrasts with the trend in the August 24-25 US Bank Citi survey, which showed long-term expectations rose to a record high of 4.8% in August.
Economists polled by Reuters expect the Bank of England to raise interest rates by half a percentage point to 2.25% next week, while financial markets believe a larger increase to 2.5% is likely.
Thursday’s poll showed that 33% of the public were dissatisfied with the way the Bank of England was concerned with controlling inflation, versus 25% who were satisfied, giving a net satisfaction of -7%, an all-time low.