UK public still expects above target inflation

Ben Southwood
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THE UK public is still expecting inflation to come in well above target over the year ahead, according to a poll from YouGov out yesterday.

Prices are expected to increase 2.7 per cent over 2013, the YouGov poll for December revealed, slightly down from the 2.8 per cent expectation the public held in November but still significantly above the Bank of England’s inflation target.

On a longer-term horizon, public inflation expectations come in even further above the Bank’s mandate, despite the Bank forecasting inflation to be target. Prices will climb an average of 3.3 per cent a year for the next five to 10 years, people believe – though this is another slight improvement on November, when forecasts ran at 3.4 per cent per year.

But these above-target expectations will not prevent Bank policymakers from adding even more to the quantitative easing (QE) programme, Citi analyst Michael Saunders judged. Saunders suggests that the Bank is setting policy not just to achieve its inflation target but also to alleviate demand and output weakness in the economy.

But a Goldman Sachs note out on Monday predicted the Bank had finished with QE for good and would look to new, unconventional measures like the Funding for Lending Scheme to boost demand in future. The QE target for gilt purchases has remained constant since July last year, when the Bank’s monetary policy committee voted to add £50bn of extra purchases to bring the total to £375bn.