Inflation expectations have risen to a three-year high, according to the latest quarterly survey from the Bank of England. The median public inflation expectation for the next 12 months rose to 4.2 per cent, compared with 3.9 per cent in the previous poll in May.
This is the highest level since August 2008. Long-term expectations are up too. Asked to give inflation expectations in five years time the median answer was 3.5 per cent, rising from 3.2 per cent in May.
Some 68 per cent of those questioned believed that the economy will end up weaker, rather than stronger, if prices rose further, up from 67 per cent in May. Satisfaction ratings with the performance of the Bank of England have also softened. Asked to assess how the central bank is performing in controlling inflation, the percentage of people satisfied fell from 43 per cent to 40 per cent. The percentage dissatisfied rose from 22 per cent to 24 per cent. Around 46 per cent of respondents said that the Bank's 2 per cent inflation target is "about right", down from 47 per cent in May.
The question now is whether this hardening of inflation expectations will discourage Bank of England policy- makers from announcing more monetary easing to support the economy.
Alan Clarke, of Scotia Capital, said: "At the margins it may make additional dissenters in favour of more quantitative easing a little more reluctant to stick their necks out at an early stage. However, we do not believe that this changes the underlying case. Sharply higher inflation expectations might have been an obstacle, but that is not what these numbers showed."