BoE Study Shows That UK Inflation Expectations Are At A Nine-Year High

A quarterly survey by the Bank of England revealed that the British public’s expectations for inflation over the next one to two years increased to their joint-highest level in over ten years and that they became less satisfied with the institution.
Although not all officials are convinced that the data offer a meaningful indication of future behavior, central bankers closely monitor surveys of inflation expectations for indications that consumers and businesses anticipate sustained above-target inflation, which would affect wage-bargaining and pricing strategies.

In November, the public’s forecast for inflation in the following one to two years increased from 3.2% in August to 3.4%, matching a figure from May that was the highest since November 2013.

In October, consumer price inflation in the United Kingdom reached a 41-year high of 11.1%, which is more than five times the BoE’s 2% target.

Net public satisfaction with how the BoE is managing inflation dropped to -12, its lowest level since the survey’s inception in 1999, from -7 in August.

However, not all survey metrics were so dismal.

Inflation expectations for the next five years increased from 3.1% to 3.3% in November, although they still lagged behind their long-term average of 3.2% and the 3.5% peak they reached in May, which lasted for two and a half years.

From a record-high 4.9% in August, expectations for inflation over the next year dropped to 4.8%.

The British government announced measures to prevent further increases in family energy costs in September.

Compared to the BoE poll, some other measures of inflation forecasts have revealed a greater fall in expectations.

A Citi and YouGov polling, which was conducted on Nov. 22 and Nov. 23, revealed that inflation forecasts for the next five to ten years had declined from a peak of 4.8% in August to 3.9% in November.

The BoE survey was conducted between November 4 and November 7, shortly after the BoE increased interest rates by one-third of a percentage point to 3%. Rates will likely be increased by another half percent to 3.5% by the BoE the following week.

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