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Inflation expectations of Britons increase

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Inflation expectations of Britons increase

Britons tend to believe inflation is more likely to be high a few months from now than they did a few months ago, according to the latest Bank of England Inflation Expectations Survey.

The study revealed that the median figure that people believe inflation was in February was 4.4 per cent, which is higher than the actual level, but was the same as the November figure.

However, there was a change in the median expectations of the rate, which were up from 3.5 per cent to 3.6 per cent for the coming year and from 3.2 per cent to 3.4 per cent for the 12 months after that.

Of course, those aware that the actual inflation rate has fallen or stayed the same in most months since September 2011 will also know the Consumer Prices Index rate in presently 2.7 per cent, but inflation attitudes can affect consumers, as it may mean, for example, some deciding not to spend any spare money they have now as they might feel they need to save it for a time in the months ahead when the cost of living will be higher.

The interest rate questions also showed a widespread lack of knowledge, with 18 per cent of the November survey respondents saying they had fallen in the past 12 months and 26 per cent saying they had risen, while the February figures indicated 14 per cent thought there had been a drop and 29 per cent a rise. All this has happened in the run up to the fourth anniversary of the base rate being set at 0.5 per cent, where it has remained ever since.

In one sense, the survey is a matter of smoke and mirrors, of public perceptions that may differ from the actual figures, perhaps because of variables such as the way different trends affect various people. For example, those who drive a lot will be hit harder by higher petrol prices.

The Bank's own decision this week was to hold the base rate at 0.5 per cent, a figure few may have imagined four years ago would have stayed unchanged ever since. For that reason, while the survey data may not be accurate, it might be just as true that many other, supposedly educated, guesses have been just as wrong.

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