UK inflation expectations surge to record high

A poll conducted by the Bank of England and Gfk NOP, a market research firm, showed that the median expectations of inflation had risen by 0.3 percentage points since November last year. The November figure of 3% was the previous record for the quarterly survey, which was first conducted in 1999.

The results of the poll have led analysts to suggest that the Bank may refrain from cutting rates in May, as was previously expected. However, monetary policy is still expected to ease over the course of 2008.

"The continued rise in inflation expectations among the general public is bound to worry the Monetary Policy Committee," said Michael Saunders, an economist at Citi, a bank. "The committee and other forecasters put a lot of weight on the role of inflation expectations in determining the medium-term trend of inflation."

Thirty percent of respondents to the poll though that rates should stay at their current levels. Thirty-five percent thought rates should go down.

Public perceptions of price growth have tended to overestimate actual inflation. Respondents predicted inflation in the 12 months to February 2008 was 3.9%, way above the 3% upper limit of the Bank's inflation range. However, the actual measure was 2.2%.

"One could argue that inflation expectations are, in part, being driven up by the perception that inflation currently is high, and by rapid increases in prices of highly visible items such as food, petrol, cigarettes, alcohol," Saunders said. "But, other proxies for inflation expectations, such as business surveys and financial market pricing, also are very high compared to trends of recent years."

The survey polled 3,985 people aged 15 and over in 350 randomly-selected enumeration districts throughout Great Britain between 7 and 19 February 2008.

To view the results of the poll, click here