Inflation expectations in the UK have hit an all-time high, piling pressure on Bank of England policymakers to consider raising interest rates this summer.
The Bank of England’s joint survey with Ipsos found that households now expect inflation to rise by 3.9 per cent over the next five years on average.
That reading is the highest recorded since data collection for the survey began in early 2009, marking a significant deterioration in public confidence over price stability.
Expectations for inflation in the year ahead also climbed sharply, rising to four per cent from 3.2 per cent in the first quarter of the year.
Britons also believe prices have jumped by around five per cent over the last year, up from a previous reading of 4.6 per cent.
CPI inflation in the year to April stood at 2.8 per cent, with next week’s reading for the 12 months to May expected to show inflation edging closer to three per cent.
Economists noted the survey results were worse than figures published by YouGov, suggesting a broader deterioration in public sentiment around prices.
Pantheon Macroeconomics analyst Rob Wood highlighted growing concerns around households’ dissatisfaction with the Bank of England over its failure to keep price growth stable.
“The inflation expectations survey suggests that the Monetary Policy Committee was far from defeating persistent inflation before the war began, so policy will need to stay somewhat restrictive even without the latest energy price shock,” Wood said.
The ongoing Iran war has further complicated the economic outlook, with the US and Israel exchanging strikes with the country earlier this week, disrupting trade across the Strait of Hormuz.
President Trump has suggested a peace deal could return to the table as negotiators prepare to convene, though an Iranian leadership spokesman said there was no “final conclusion” reached.
Prolonged trade disruption could have severe consequences for the UK economy, with one Bank of England scenario suggesting inflation could race past six per cent and rates could be hiked to 5.25 per cent.
The European Central Bank moved this week to raise its deposit rate to 2.25 per cent, taking pre-emptive action against the growing threat of an inflation spike across the eurozone.
The Bank of England is not expected to raise rates at its meeting next Thursday, although the prospect of monetary tightening over the summer remains firmly in play for some economists.
Suren Thiru, ICAEW’s chief economist, said: “Continued concerns over inflation could mean a further hawkish shift within the committee with another rate-setter joining Huw Pill in backing a rate rise, keeping the door open to a summer interest rate hike.”