THE UK public's expectation of benchmark inflation over the coming year rose to its highest in three years, a survey from the Bank of England and pollster GfK NOP revealed yesterday.
The median expectation of annual UK consumer prices index inflation over the coming year was 4.2%, up from 3.9% in a May poll.
Annual CPI inflation rose from 4.4% in July to 4.5% in August – more than double the Bank’s 2% target.
The Bank’s Monetary Policy Committee has foreccast inflation could climb to about 5% in the short term, on electricity and gas price hikes. It then forecasts a sharp fall in inflation amid the economic weakness, and has cited potential for an undershoot of the target on a two-year time horizon.
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: “While the Bank will be far from happy to see inflation expectations rising to a three-year high, it is highly unlikely to deter the MPC from keeping interest rates down at 0.5% for a considerable time to come.”
He believes the MPC’s view on raising the scale of the boost to money supply beyond the current £200bn will be determined by “whether or not the economy continues to soften”.
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