The British public’s expectations for inflation over the next 12 months and beyond have significantly cooled ahead of the Bank of England‘s (BoE) upcoming interest rate meeting, according to a survey released on Wednesday.
The survey, conducted by banking group Citi and pollsters YouGov, revealed that inflation expectations for the next year dropped to 2.6% in June.
This is the lowest level since March 2020, a notable decline from 3.1% in May.
Longer-term expectations, spanning five to ten years, also decreased, falling to 3% from 3.2%, marking the lowest reading since May 2020.
Citi economist Benjamin Nabarro commented on the findings, stating, “For the (BoE), this should provide further encouragement that second round effects are continuing to fade in a relatively symmetric fashion, consistent with fading wage pressures in the forward-looking data.”
Investors are now seeing about a 33% chance of a BoE interest rate cut on August 1, following data that showed strong underlying price pressures in the UK economy, despite the headline inflation rate holding steady at 2%. Earlier this week, the probability of a rate cut was estimated to be around 50%.
This shift in expectations comes as a response to the latest inflation data, which indicates a reduction in inflationary pressures.
The BoE has been closely monitoring these trends as it considers its monetary policy decisions.
The decline in both short-term and long-term inflation expectations suggests that public sentiment is aligning with the central bank’s efforts to control inflation and stabilize the economy.
The upcoming BoE meeting is highly anticipated, with market participants keen to see if the central bank will adjust its interest rates in response to the cooling inflation expectations.
The recent survey results provide some reassurance that inflationary pressures are easing, potentially influencing the BoE’s decision-making process.
Overall, the survey’s findings indicate a positive shift in inflation expectations among the British public, reflecting confidence in the BoE’s ability to manage inflation and maintain economic stability.
The next steps taken by the BoE will be crucial in shaping the economic outlook for the coming months.