UK public’s inflation expectations fall to two-year low

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The British public’s expectations for price growth in the year ahead fell to the lowest level in two years last month, supporting the view that the Bank of England will not need to raise interest rates at its meeting next week.

The average expectations of the rate of inflation over the next 12 months dropped to 3.3 per cent in November, from 3.6 per cent in August, when the question was last asked, according to the Bank of England.

The figure from a quarterly survey of public attitudes to inflation published on Friday was the lowest since November 2021, when prices started surging on the back of supply chain disruptions and rebounding demand.

Inflation rose further in 2022 following the increase in energy and food prices after Russia invaded Ukraine — the BoE survey showed a peak figure of 4.9 per cent that summer.

Public inflation expectations matter for the BoE because they shape wage and spending behaviours. Workers and consumers may seek higher wages or spend more cautiously if they expect strong price growth.

The survey, which was conducted in the first week of November by Ipsos, also showed that Britons’ expectations of inflation in five years’ time rose to 3.2 per cent, up from 2.9 per cent in August and the highest in a year.

In October, headline inflation eased sharply to 4.6 per cent, down from 6.7 per cent in September but still well above the BoE’s 2 per cent target.

The data came ahead of the BoE’s monetary policy meeting on December 14, when markets expect rates to be kept at a 15-year high of 5.25 per cent.

A decision to hold rates would mark the third meeting with no change in interest rates after 14 consecutive increases from a record low of 0.1 per cent in November 2021.

The findings are “good news for the Bank of England and households wage demand going forward”, said Tomasz Wieladek, chief European economist at the investment company T Rowe Price.

But he added the longer-term outlook meant the recent “more hawkish communication from the Bank of England remains appropriate”.

Policymakers have pushed back against market pricing that the BoE will cut rates by the middle of next year.

Last week Jonathan Haskel, an external member of the central bank’s Monetary Policy Committee, said there was no scope to cut UK interest rates “anytime soon” as the labour market remained tight.

Friday’s survey showed a boost in public satisfaction with how the BoE is tackling inflation. Last month, 34 per cent of the population was dissatisfied with how the central bank was handling inflation, according to the survey, down from 40 per cent in August.

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