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UK public inflation expectations drop to 16-year low
March 11, 2016 / 9:36 AM / in 2 years

UK public inflation expectations drop to 16-year low

A customer carries a shopping basket at an Asda store in northwest London, Britain, in this file photograph dated August 18, 2015. REUTERS/Suzanne Plunkett/files

LONDON (Reuters) - The British public’s expectation for inflation over the next 12 months fell to its lowest in more than 16 years, a Bank of England survey showed on Friday, raising the risk that below-target price growth may become entrenched.

The average expectation for inflation over the coming year among more than 4,000 people polled for the BoE last month sank to its lowest since November 1999 at 1.8 percent, down from 2.0 percent in November 2015.

British consumer price inflation has been below the BoE’s 2 percent target for two years and last year it was zero, the lowest since comparable records began in 1950. The BoE expects it to stay below 1 percent throughout 2016, as the effect of last year’s sharp fall in oil prices fades slowly.

Annual consumer price inflation is currently 0.3 percent.

The central bank keeps a close eye on public inflation expectations, in case below-target headline inflation becomes entrenched through lower pay demands and business price rises.

But some policymakers take the raw numbers 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.

Inflation expectations for two years ahead dropped to 2.1 percent from 2.3 percent in November.

The trend in the BoE survey contrasts with a similar one by polling company YouGov for Citi showed last month that Britons’ inflation expectations for the year to come rose to a five-month high of 1.5 percent in February.

Economists have pushed back their bets on when the BoE will start to raise interest rates from their record low 0.5 percent as the global economic outlook has darkened.

A Reuters poll earlier this week showed that most economists do not expect the BoE to raise rates until the first quarter of 2017, compared with the fourth quarter of 2016 in a poll just a month earlier.

The BoE poll showed that 38 percent of the public expect rates to rise in the next 12 months, up from 35 percent in November but down from 50 percent in August, the highest in more than four years.

Reporting by David Milliken; Editing by Toby Chopra

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