A record proportion of Brits expect the current inflation crunch to linger in a year’s time, fresh data released today reveals.
Some 35 per cent of households think the cost of living will top five per cent by this time next year, according to Bank of America.
The fresh figures will worry the Bank of England as it indicates households are starting to bake in higher prices over the long run, which can spark changes in economic behaviour and lead to even higher inflation.
The Bank will deliver its next rate decision next Thursday.
When inflation expectations are high, workers may demand higher pay to compensate for the increase in the cost of living, leading to firms lifting prices to offset costs, creating an inflation feedback loop.
“General economic confidence fell, likely due to Russia’s invasion of Ukraine. Most notably we think unemployment expectations continued to rise,” Bank of America said.
Despite the jump in year ahead expectations, there was no change in expectations in five year’s time.
However this is “only a sliver of comfort though [for the Bank] because expectations were so high to start with, at 4.4 per cent for five year expectations on our survey,” Bank of America said.