Brits’ inflation expectations climb to record high piling pressure on BoE to launch more rate hikes
Britons’ expectations for inflation in a decade’s time is running at a joint record high, heaping further pressure on the Bank of England to continue its rate hike cycle.
Households think the cost of living will land at 4.1 per cent in ten years’ time, up from 3.8 per cent last month, the joint highest on record, according to a survey by bank Citi and pollster YouGov.
The fresh survey provides more evidence suggesting the UK is flirting with a wage/price spiral which can lead to persistently higher inflation being embedded in the economy.
Inflation is already running at its highest rate in nearly 30 years, reaching 5.5 per cent last month, according to the Office for National Statistics.
The Bank is expected to build on its successive rate hikes at its meeting on 17 March in a bid to tame the cost of living.
Experts are forecasting inflation to possibly breach eight per cent in April, driven higher by a 54 per cent uplift to the energy price cap and soaring food prices.
Concerns over the security of energy supply triggered by the Russia-Ukraine conflict has prompted economists to scale up their forecasts for their expected inflation peak.
Threadneedle Street thinks the rate of price rises will peak at 7.25 per cent, but developments in eastern Europe will likely mean inflation will beat the Bank’s expectations.
A wage/price spiral unfolds when businesses lift prices to offset cost pressures, prompting workers to demand higher pay, in turn sparking further price hikes from companies.
Benjamin Nabarro, an economist at Citi, said: “Today’s data, especially the level of long-term expectations, suggest a growing risk that expectations could become de-anchored.”