© Reuters. People relax in front of the Bank of England in London’s financial district, as Britain struggles with the highest inflation rate among the world’s big rich economies, in London, Britain, July 17, 2023. REUTERS/Rachel Adams/File Photo
By David Milliken
LONDON (Reuters) -The British public’s expectations for the pace of inflation over the coming year have fallen over the past three months, a Bank of England survey showed on Friday, which may reassure policymakers who are considering when to cut interest rates.
Median expectations for inflation for the next 12 months fell to their lowest since August 2021 at 3.0% in February, down from 3.3% in November, the survey showed.
Expectations for the 12 months after that were unchanged at 2.8%, while longer-term expectations fell to 3.1% from 3.2%.
Consumer price inflation was 4.0% in January and December, double the BoE’s target.
Data due on Wednesday is expected to show it fell to 3.6% in February, according to preliminary figures from a Reuters poll of economists.
While the public’s expectations for future inflation are not a good direct prediction of price growth, BoE economists look at them as a guide to future pressure for higher wages and how willing households will be to accept higher prices.
The BoE forecasts that inflation will return to its 2% target for the first time in three years in the second quarter of this year, but it also expects inflation will rise back towards 3% later in the year as the impact of lower energy prices fades.
Annual wage growth of around 6% is roughly double its rate before the COVID-19 pandemic, when inflation was under control.
Thursday’s survey – which polled more than 4,000 people between Feb. 2 and Feb. 20 – showed that net satisfaction with the BoE’s control of inflation rose to minus 5% from minus 14% in November.
The difference between the percentage of people satisfied and dissatisfied with the BoE’s performance hit a record low minus 21% in August 2023.
Last month the BoE said that interest rates at a 16-year high of 5.25% were “under review” but a rate cut was unlikely in the immediate future as wage growth and services price inflation was too high.
Economists polled by Reuters expect the BoE to keep rates on hold when it announces its March rate decision on Thursday. But they expect a first cut no later than the third quarter of 2024, with a 40% chance of a move in the second quarter.
Friday’s survey showed 26% of the public expected a cut in interest rates over the coming year – up from 16% in November – but 36% expected rates to rise further.
Source: Investing.com
