UK inflation expectations reach three-year low

The British public’s expectations for inflation have eased to a three-year low, a Bank of England survey showed on Friday.

According to the central bank’s latest quarterly inflation attitudes survey, inflation expectations for the coming year fell from 2.8% in May to 2.7% in August, the lowest reading since August 2021.

Expectations for the following 12 months were unchanged at 2.6%, but rose to 3.2% from 3.1% in May for the five-year outlook.

The survey is closely watched by the BoE’s rate-setting Monetary Policy Committee, which uses it as a guide for future inflation trends.

The MPC, which cut interest rates in August for the first time since March 2020, is due to meet next Thursday.

Currently standing at 5%, most analysts expect rates to be left unchanged ahead of a further 25 basis point cut later in the year.

Inflation hit its 2% target early in the summer, but drifted up to 2.2% in July, data released last month showed. It was, however, a smaller rise than many economists had forecast.

The BoE currently expects inflation to continue edging up in the coming months, reaching 2.75% before starting to fall below 2% next year.

The survey of more than 2,000 people aged between 16 and 75 was carried out between 2 and 6 August, just after the MPC’s cut.

Asked about the future path of interest rates, 29% said they were likely to rise over the next 12 months, down on the last survey’s 34%, while 22% expected them to stay the same.

The net satisfaction balance, which asked participants to assess the way the BoE is going its job to set interest rates to control inflation, was 4, up from -4 in May.