TRUST IN BANK FALLS AS INFLATION RISES
PUBLIC satisfaction with the Bank of England has declined in the last year, as inflation tightens its squeeze on Britons’ finances.
The net balance of people satisfied with the Bank’s performance has dropped from nearly 30 per cent early in 2010 to below 20 per cent this year, the Bank admitted today.
“Households with higher inflation perceptions tend to be more likely to report that they are dissatisfied with the Bank,” it said in its latest Quarterly Report.
The decline in the Bank’s popularity is “perhaps in part reflecting a rise in households’ perceptions of inflation over that period,” the report suggested.
Long term inflationary expectations “remain anchored,” the Bank believes, despite expectations that inflation will remain close to double the target level one year ahead.
However, a separate study by business group BDO will today claim that inflation expectations have hit a 32-month high.
BDO’s inflation index struck 110.9 in May from 108.5 the previous month – its highest level since September 2008, and the sharpest monthly spike since December 2009.
Consumer price inflation has increased from 3.1 per cent in July last year to 4.5 per cent in April – a two and a half year high.
“We would be more reassured over medium-term inflation prospects if Mervyn King mimicked the European Central Bank and announced that his monetary policy committee is also in ‘strong vigilance’ mode,” commented Citigroup’s Michael Saunders.
The ECB signalled last week that another stage of normalisation will be met next month, bringing rates in the Eurozone to 1.5 per cent, despite ongoing troubles in peripheral countries such as Greece and Portugal.
“By contrast, the approach of the majority on the Bank’s committee, so far, has been to rely on forecasts that inflation will eventually fall back to target, even though the experience of recent years suggests that the Bank cannot produce tolerably accurate forecasts for inflation even a year ahead,” Saunders added.
The consumer price index (CPI) is likely to hit five per cent this year and remain above target throughout 2012, the Bank of England’s most recent inflation report estimated – based on the assumption that interest rates increase this year, as priced in by markets at the time.
Markets have subsequently moved to expect a rate hike only towards the end of the first quarter in 2012, with fading signs that the Bank will tighten policy this year.
The MPC voted to keep rates at their historic low of 0.5 per cent last week, for the 27th straight month. Its arch-hawk Andrew Sentance was replaced by new member Ben Broadbent, whose voting intentions are as yet unknown.
Official inflation figures for May are released tomorrow.