Inflation expectations at two year high

City A.M. Reporter
Britons expect a higher rate of inflation over the coming year than at any time since August 2008, suggesting concern about a looming sales tax rise and rising food prices, a Bank of England survey showed on Thursday.

The Bank's November inflation attitudes survey showed that the public expect inflation of 3.9 per cent over the next 12 months, up from an expected 3.4 per cent in August and the highest rate since August 2008.

Inflation has been at least a percentage point above the Bank's two per cent target since the start of the year, due in part to a rise in value-added tax in January as well as high commodity prices. Last month consumer price inflation unexpectedly rose to a six-month high of 3.3 per cent due to record increases in food and clothing prices.

A further rise in VAT is due next month, and the Bank itself expects inflation of well over three per cent next year before it falls back to target early in 2012.

Respondents in the Bank's survey said they expected inflation in two years time be 3.2 per cent and in five years time to be at 3.3 per cent – the highest forecasts for these measures since the Bank first asked about them in February 2009.

The Bank had not previously made the answers to these questions public.

Bank Deputy Governor Charles Bean said earlier this week that the central bank was keeping a very close eye on inflation expectations in case they triggered a spiral of pre-emptive price rises and wage demands that could stop inflation falling.

The survey was carried out by polling company GfK NOP in November and interviewed 2,057 people.