UK public inflation expectations drop

The British public’s expectation for inflation over the next 12 months fell to its lowest in more than 16 years, according to a Bank of England (BoE) survey on Friday.

More than 4,000 people were polled, with the average expectation for inflation over the coming year at 1.8%, its lowest since November 1999, down from 2% in November 2015 [1].

British consumer price inflation (CPI) has been below the BoE’s 2% target for two years, and last year it was zero; the lowest since records began in 1950. The BoE is expecting it to stay below 1% throughout 2016, due to the effects of oil prices on the global economy [1].

Annual consumer price inflation is currently 0.3% [2].

Some policymakers are taking the figures with a pinch of salt, as the surveys often appear closely correlated with moves in headline inflation rather than giving a guide to future price trends.

Analysts and economists are not expecting the BoE to move rates until the last quarter of the year, more likely to be next year [3].

Focus is on the outcome of the referendum; if the UK votes to leave European Union, this may lead to an interest-rate cut from the BoE to soothe the impact of uncertainties. The Central Bank has already announced that it would provide virtually unlimited credit lines to cover any short-term funding gap [3].

[1] Reuters UK. ‘UK public inflation expectations drop to 16-year low – Bank of England’.
[2] Yahoo News. ‘UK public inflation expectations drop to 16-year low – Bank of England’.
[3] EconoTimes. ‘Rate hike expectations from BoE move up’.