UK inflation expectations shows a record jump

The British public’s expectations for inflation have shot up in this year. Citi claimed that this is by a record amount raising the risk that the Bank of England will send a hawkish message soon. The Citi/YouGov monthly inflation expectations survey showed that public inflation expectations for the next year has jumped to 4.1% in September. This is the biggest monthly increase since the survey began. Longer-term inflation expectations for the next five to 10 years rose to 3.8% in September.

Citi stated that today’s data, especially the movement in long-term expectations, suggest growing risks inflation expectations could become de-anchored to the upside. The sharp increase risks a hawkish response from the Monetary Policy Committee. The BoE’s Monetary Policy Committee is getting ready for an earlier meet. Citi’s survey contrasts with a much smaller increase in inflation expectations in a poll, published by BoE.

The BoE is expected to start to raise interest rates early next year. But most economists think a move will only come towards the end of 2022. The BoE looks closely at inflation expectations for signs the public expect above-average inflation over the medium term. This could lead to greater pressure for pay rises. And also, for prompt businesses to raise prices in expectation of higher costs. Inflation expectations tend to be pushed up by short-term rises. The consumer price inflation jumped to 3.2% last month. In recent days energy companies have warned of big rises in electricity and heating bills. The Citi/YouGov survey was based on a poll of 2,005 adults.