Public’s worries over rocketing prices may put a block on QE

Britons' worsening fears over inflation could prevent the Bank of England from pumping billions more into the UK’s anaemic recovery, experts said today.

The warnings came after its latest inflation attitudes survey showed the public braced for inflation of 3.6% over the next 12 months, the highest level since last May and well above the Bank’s official Consumer Prices Index benchmark, currently 2.7 per cent.

The public has little faith in the Bank’s ability to bring inflation back to the 2 per cent target over the longer term, with an inflation rate of 3.6 per cent expected in five years’ time.

The survey comes against a backdrop of surging utility bills, petrol prices and food costs likely to push the CPI above 3 per cent by the middle of this year. The central bank is ignoring the extended period of rising prices for now as the economy struggles for momentum.

But the monetary policy committee places significant weight on inflation expectations.

Chancellor George Osborne has made it clear it expects the Bank to shoulder the burden of spurring growth while he tackles the deficit, but experts said the MPC could be reluctant to sanction further stimulus if higher inflation feeds into increased wage demands.

The committee held fire on more money-printing yesterday although three members, including Governor Sir Mervyn King, voted for more quantitative easing last month.

Chris Williamson, chief economist at financial data provider Markit, said: “The uptick in inflation expectations may have contributed to the committee decision against further stimulus.” IHS Global Insight’s Howard Archer added: “The MPC needs to be confident that underlying domestic cost and price pressures remain consistent with an eventual return to target.

“If public inflation expectations were to rise significantly further, this would make life more difficult still for the Bank.”