UK Inflation Expectations Cool From Two-Year High Before BOE Vote
MichelleBritish households' inflation expectations edged down from their highest in two years, a slight easing that may soothe concerns at the Bank of England as officials decide whether to cut interest rates further.
British households' inflation expectations edged down from their highest in two years, a slight easing that may soothe concerns at the Bank of England as officials decide whether to cut interest rates further.
Households anticipate prices rising 3.5% over the next 12 months, down from the two-year high of 3.6% in August, according to a survey by the central bank. They predicted prices would climb 3.7% annually in five years' time, also down 0.1 percentage point from the last time the survey was done.
While the figures suggest household inflation expectations remain at elevated levels, the cooling was the latest sign that the BOE is beginning to contain the threat from a fresh spike in inflation. It is expected to resume its cutting cycle at its meeting on Thursday, though economists predict a close result with Governor Andrew Bailey seen as the key swing voter.
The rate decision will be announced the day after official inflation data is released for November, which may indicate whether price pressures have peaked. CPI is expected to cool to 3.4%, according to a Bloomberg survey of economists, compared with 3.6% in October.
The forward-looking inflation expectations survey is closely watched by the central bank for signs that elevated price pressures will persist. Households fearing high inflation to continue could demand bigger wage rises that feed back into prices.
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Robert Wood, chief UK economist at Pantheon Macroeconomics, said the small fall "helps the case for a rate" cut next week. "This will give rate-setters some comfort that expectations can continue falling as headline inflation slows through to next summer," he added.
High expectations have kept some on the Monetary Policy Committee wary over reducing rates further. However, there is growing evidence of inflation cooling and the economy stalling with figures earlier on Friday showing gross domestic product contracting again in October.
Hawks on the panel are resisting a further easing in interest rates after raising concerns about signs that households expect sticky inflation to linger. The MPC's doves argue that a weak labor market will reduce workers' ability to get bumper pay hikes, limiting the inflation impact from high expectations.
The survey also showed Britons increasingly fear the BOE will raise rates to stamp out sticky inflation. The net share of households expecting hikes in the next 12 months hit the highest since November 2023.
