UK public’s inflation expectations ease in Nov – Citi/YouGov

By David Milliken

LONDON (Reuters) -The British public’s expectations for inflation over the coming years eased back further in November from record highs reached in August, a monthly Citi/YouGov survey showed, suggesting less pressure on the Bank of England to raise rates.

The British central bank looks closely at surveys of inflation expectations as a guide to how likely businesses are to charge higher prices and whether workers will seek bigger pay rises, which can potentially entrench high rates of inflation.

Consumer price inflation hit a 41-year high of 11.1% in October, largely due to a surge in energy prices, as well as post-pandemic bottlenecks and labour shortages.

However, the Citi/YouGov survey showed expectations for inflation in five to 10 years’ time dropped to 3.9% in November from 4.2% in October, and well below the record 4.8% struck in August. Between 2016 and 2020, when inflation was around the BoE’s 2% target, these expectations averaged 3.0%.

“Risks to medium-term price stability remain elevated. But for now, we think the immediate risks remain contained,” Citi economist Ben Nabarro said.

Falling inflation expectations made it more likely that the BoE would raise interest rates by half a percentage point to 3.5% at its December meeting, rather than repeat November’s 75-basis-point rise, he added.

Economists’ forecasts for the peak in British inflation are lower now than in August when inflation expectations peaked, largely because of measures to cap household energy bills and increased evidence that Britain is entering recession.

November’s survey showed the public’s expectations for inflation in 12 months’ time have fallen to 6.1% from 6.2%, based on the longer-running of Citi’s two separate year-ahead measures.

The newer measure, which Citi and YouGov introduced to better capture expectations of double-digit inflation, fell to 7.3% from a peak of 10.3% in August.

YouGov polled 2,004 adults on Nov. 22 and Nov. 23 for the survey.

(Reporting by David MillikenEditing by Gareth Jones)