Inflation expectations accelerate in latest BoE survey

The BoE/Ipsos survey for May said when asked to give the current rate of inflation, respondents gave a median answer of 6.1%, up from 5.0% in February.

In its latest consumer price index data, the Bank said prices rose 9% year-on-year in April, and were expected to accelerate further in the coming months.

The survey said median expectations of the rate of inflation for the coming year were 4.6%, up from 4.3% in February, while expected inflation in the 12 months after that returned a median answer of 3.4%, up from 3.2%.

Looking further ahead, when asked about expectations of inflation in the longer term - say in five years’ time - the BoE said respondents gave a median answer of 3.5%, up from 3.3% in February.

“By a margin of 66% to 9%, survey respondents believed that the economy would end up weaker rather than stronger if prices started to rise faster, compared with 59% to 7% in February,” the board said in its statement.

“31% of respondents thought the inflation target was ‘about right’, down from 33% in February.

“The proportions saying the target was ‘too high’ or ‘too low’ were 34% and 18% respectively.”

The Bank said 7% of respondents thought interest rates on things such as mortgages, bank loans and savings had fallen over the last 12 months, compared with 8% in February.

Meanwhile, 66% of respondents said that interest rates had risen, compared with 54% three months earlier.

The Bank of England hiked its key Bank Rate to 1% in its May decision, having brought it from its historic low of 0.1% over four decisions since December.

“When asked about the future path of interest rates, 15% said they expected rates to stay about the same over the next 12 months, compared with 16% in February.

“70% of respondents expected rates to rise over the next 12 months, up from 65% in February.”

When asked what would be “best for the economy”, out of higher interest rates, lower rates or no change, the BoE said 28% thought rates should “go up”, unchanged from three months prior.

22% of respondents thought that interest rates should “go down”, up from 16%, and 28% thought they should “stay where they are”, down from 31% in February.

On a personal level, when asked what would be “best for you personally”, 30% of respondents said it would be better for them if interest rates rose, down from 31%, while 25% said it would be better for them if interest rates fell, up from 20% in February.

Finally, respondents were asked to assess the way the Bank of England was “doing its job to set interest rates to control inflation”.

The Bank said its net satisfaction balance - the proportion satisfied minus the proportion dissatisfied - swung into the negatives to -3%, down from +6% in February.

Reporting by Josh White at Sharecast.com.