(Reuters) – The British public’s expectations for inflation in five years’ time hit their highest level since mid-2022, according to a survey by the Bank of England which has stressed it is taking a gradual approach to cutting interest rates.
The median expectation for inflation five years ahead rose to 3.4% in November, the highest since May 2022, from 3.2% in August, the quarterly survey showed.
The BoE and other forecasting bodies say inflation is likely to rise next year, thanks in part to finance minister Rachel Reeves’ big-spending budget which include tax increases on employers who are likely to raise prices in response.
Strong wage growth and price pressures in the services sector mean that Britain is likely to see the highest rate of consumer price growth among Group of Seven advanced economies next year, according to the OECD.
Although the public are poor predictors of price increases, the BoE closely monitors their expectations for any signs that households are adopting an inflationary mindset, which would complicate the goal of returning inflation to the 2% target.
British inflation jumped by more than expected in October to 2.3% and underlying price growth gathered speed too.
It is expected to rise further to 2.5% when data for November is published on Dec 18, according to the median forecast in a Reuters poll of economists.
Investors expect the BoE to keep borrowing costs on hold on Dec 19 and cut interest rates only three times in quarter-point moves between now and the end of 2025.
Median inflation expectations for the year ahead increased to 3.0% in the latest survey from 2.7% previously, the highest reading since February, the BoE said.
The survey was conducted by polling firm Ipsos between Nov. 8 and 11.
(Reporting by Andy Bruce; Editing by William Schomberg)
