A recent Bank of England survey has revealed a decrease in the British public’s inflation expectations for the coming year, potentially easing concerns for policymakers deliberating on interest rate cuts.
As of February, the median forecast for inflation over the next 12 months dropped to 3.0%, the lowest since August 2021, marking a decline from November’s 3.3%.
Expectations for the following year remained steady at 2.8%, while long-term projections slightly decreased to 3.1% from 3.2%.
This comes against a backdrop of consumer price inflation standing at 4.0% for January and December, notably above the Bank’s 2% target.
Anticipated data suggests a dip in inflation to 3.6% for February, aligning with preliminary estimates.
Although public inflation expectations don’t directly predict future price increases, they are considered by Bank of England economists for insights into potential wage pressure and household price tolerance.
The Bank anticipates inflation returning to its target in the upcoming quarter for the first time in three years, despite expecting a rise towards 3% later due to diminishing energy price impacts.
Wage growth has been significant, with annual rates approximately double the pre-pandemic levels, amidst controlled inflation.
The survey, conducted from February 2 to February 20 and polling over 4,000 individuals, indicated an improvement in satisfaction with the Bank’s inflation management, moving to minus 5% from November’s minus 14%.
This reflects a recovery from a record dissatisfaction low in August 2023.
Despite interest rates being at a 16-year peak of 5.25% and under review, immediate cuts seem improbable due to persistent high wage and service price inflation.
Nevertheless, economists foresee rates holding steady in the upcoming March decision, with anticipations of a cut by the third quarter of 2024, and a 40% likelihood for the second quarter.
The survey also noted a growing expectation among the public for a rate cut within the year, increasing to 26% from November’s 16%, even as 36% still expect further rises.