This content is not available in your region

UK medium-term inflation expectations joint-highest since 2013 - Citi/YouGov

Access to the comments Comments
By Reuters
UK inflation expectations for 5-10 years ahead edge up-Citi/YouGov
UK inflation expectations for 5-10 years ahead edge up-Citi/YouGov   -   Copyright  Thomson Reuters 2021

By David Milliken

LONDON -The British public’s expectations for inflation over the next five to 10 years edged up this month to their joint-highest level in eight years, according to a survey on Tuesday from U.S. bank Citi and polling company YouGov.

In news that may discomfit the Bank of England as it decides whether to raise interest rates on Thursday, long-term inflation expectations rose to 3.8% in December from 3.7% in November. This matches September’s reading which was the highest since the third quarter of 2013.

Expectations for 12 months’ time held unchanged at 4.0%. Both measures are well above their long-run averages, Citi said.

Citi said it did not believe these data alone would be enough to prompt the BoE to raise interest rates on Thursday, given the central bank’s concern about the Omicron coronavirus variant.

“Instead, we expect some upward pressures here to keep the Bank on course for a rate hike – most likely in February,” its economists wrote in a note to clients.

Some BoE policymakers place greater weight on long-term measures of inflation expectations – which might suggest the public is losing faith in the BoE’s ability to hits its 2% inflation medium-term target.

Short-term measures of inflation expectations are more influenced by the latest inflation data, and Citi said they had fallen since the end of fuel shortages in October.

Consumer price inflation hit a 10-year high of 4.2% in Britain in October and economists polled by Reuters expect November data due for release on Wednesday to show inflation rising further to 4.7%.

Citi said it expected inflation to reach as high as 6.4% in April 2022 – a level last seen 30 years earlier – as regulated household energy prices are due to rise sharply.

Earlier on Tuesday, the International Monetary Fund urged the BoE not to succumb to ‘inaction bias’ when juggling the trade-off between inflation pressures and ongoing risks to growth from the COVID-19 pandemic.