Pound boosted by uptick in inflation expectations

STERLING yesterday managed to claw back some of Wednesday’s sharp losses after Bank of England data showed that consumers’ expectations for inflation over the next year inched higher.

Figures from the quarterly Bank of England/GfK NOP Inflation Attitudes Survey showed that on average, Britons are expecting inflation to be around 2.5 per cent over the coming year – the highest since 2008 – above the Bank’s two per cent target but less than the current rate of 3.5 per cent.

Just over half of Britons think rates will rise over the next 12 months, an increase on November. And 36 per cent think keeping rates on hold would be best for the economy.

BNP Paribas’ UK?economist Alan Clarke said: “The MPC should take comfort from the fact that respondents agree with the Bank’s view that the currently elevated level of inflation is not expected to last and that expectations have hardly reacted to one of the sharpest jumps in CPI inflation in recent memory.”

There were fears that rapid price rises had undermined the Bank’s ability to target inflation, but it appears that expectations have not been dislodged.