The British public’s expectations for inflation, especially in the short term, have fallen, according to a survey that will feed into this week’s debate at the Bank of England about whether to signal a move towards cutting interest rates.
Public expectations for inflation for the 12 months ahead fell to 3.9 per cent in November and to 3.5 per cent in December from 4.2 per cent in October, the survey by US bank Citi and market research company YouGov showed.
For the five to 10 years ahead, expectations fell by less over November and December, dropping by 0.1 percentage points to 3.4 per cent from 3.5 per cent in October, the survey showed.
“For now, the longer-term data in particular point to some lingering risks,” Citi economist Benjamin Nabarro said.
“However, with inflation now set to fall to 2 per cent in the second quarter, we think the imminent danger is fading. For the MPC (Monetary Policy Committee), we think these data suggest scope for less pervasive inflationary aversion, and a more balanced view of the economic risks.”
The BoE is expected to take a tentative first step towards cutting interest rates from their highest level in nearly 16 years on Thursday after other signs that the inflation crisis is easing off.
But while the central bank might soften its message about the possibility of future cuts, investors expect no actual reduction in borrowing costs for several more months.