© Reuters file photo: Buyers walk down Oxford Street amid an outbreak of coronavirus (Covid-1) in London, Britain, December 1, 2020. Reuters / Simon Dawson
By David Milken
LONDON (Reuters) – The British public’s expectations for inflation next month have risen to record levels this month, raising the risk that the Bank of England will soon send a hawkish message, the city said on Tuesday.
The City / Ugov Monthly Inflation Expectations Survey found that inflation expectations for the next 12 months rose to 3.1% in August from 4.1% in September, the largest monthly increase since the survey began 15 years ago.
Long-term inflation expectations for the next five to ten years have risen from 8.8% in September to .5% in August.
“Today’s data, especially the movement of long-term expectations, may reverse the expectation of rising risk inflation. The sharp rise puts at risk a hawkish response from this week (Monetary Policy Committee),” Citi said.
The BoE’s monetary policy committee is meeting ahead of its September policy statement on Thursday. Citi’s survey contrasts with a much lower-than-expected rise in inflation in a survey for August released by the BoE last week.
Financial markets expect the BoE to start raising interest rates early next year, probably as early as February, although most economists think a move will only come by the end of 2022.
The BOE is keeping a close eye on inflation expectations for the signs that the public expects on medium-term inflation in the medium term, which could put further pressure on wage increases and persuade traders to raise prices in anticipation of higher costs.
Inflation expectations are pushed by short-term growth in the current rate of inflation. Last month, consumer inflation rose to 3.2% from 2.0% in July, and energy companies have warned of large increases in electricity and heating bills in recent days.
The CT / UGV survey was based on 2,005 surveys of adults on September 20 and September 21.
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