Britons are bracing themselves for the highest inflation for at least six years over the coming months as soaring energy prices take their toll, a survey for the Bank of England revealed yesterday.
As oil prices again shot to fresh all-time records, research for the Bank showed households believe price pressures have escalated faster than reality. Inflation-busting rises in gas, electricity, water and council tax bills mean respondents fear the present rate of inflation on the consumer price index (CPI) will hit 2.8 per cent over the coming year. This is well above the Bank's 2 per cent target and the highest since the survey was launched in November 1999.
The findings of the NOP poll are certain to alarm members of the Bank's Monetary Policy Committee who are worried an excessive view of the rising cost of living could trigger a vicious circle. If people believe inflation is on the up they will demand bigger pay rises and businesses will try to raise their prices, causing inflation to spiral.
Households believe CPI is running at 2.7 per cent, again a high since the survey started, and way above the 2 per cent it hit in February. Worryingly for the Bank, there was a sharp jump in the number of people who expect shop prices to rise by at least 5 per cent over the coming year.
Economists warned the survey, conducted in February and March, did not capture the latest wave of utility price rises, which are just appearing on monthly bills. The Bank has warned higher gas prices will push inflation above its target.
Mounting fears of a military attack by the US on oil-rich Iran sent Brent crude up as much as $1.18 to $72.64 a barrel on the London-based ICE Futures exchange yesterday. It later settled at $72.50. In New York, Nymex prices hit $71.60, which beat the previous high of $70.85 set after Hurricane Katrina in September. Gold hit a fresh 25-year high of $623 per ounce. Oil is nearing the inflation-adjusted peaks of more than $80 a barrel hit in 1980, the year after the Iranian revolution.
Responding to the threat oil poses to the global economy, Gordon Brown will call for greater energy efficiency and greater investment in cleaner energy when he addresses the G7 as chairman of the IMF's international monetary and financial committee in Washington this week. In a speech to the UN before the meetings, he will warn the "underlying problem is one of demand", pointing to Asia's consumption of one-third of the world's oil.Reuse content