INFLATION expectations in the UK have dropped to their lowest level since late 2009, as the Bank of England continues to unanimously support historically-low interest rates in the face of weak price pressures.
The Bank’s nine-member monetary policy committee (MPC) voted to keep rates at 0.5 per cent at its last meeting on 9 April, according to minutes of the event published yesterday. Governor Mark Carney is keen to keep policy loose despite signs of a robust recovery.
And hours after the release, a separate survey from Citi and YouGov revealed median inflation expectations of two per cent for the year ahead, down from 2.1 per cent in March.
“These results are likely to further reassure the MPC that the strong economic recovery, falling jobless rate and ultra-low interest rates have not destabilised inflation expectations,” Citi analysts said in a note.
However, the Bank’s minutes let slip some disagreement over the likely direction of inflation to come.
“There was considerable uncertainty about the amount of slack remaining within the economy and committee members had a range of opinions on this and the outlook for inflation in the medium term,” the minutes said.
Some officials, such as Martin Weale, have suggested there could be less slack in the economy than the Bank has officially estimated.
Nonetheless, IHS Global Insight economist Howard Archer believes Bank rate will remain anchored.
“The minutes of the April meeting do little to dilute the view that the second quarter of 2015 is currently the prime candidate for when the Bank starts to inch interest rates up,” Archer said.