UK medium-term inflation expectations are at their highest since 2013 – Citi / YouGov

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Shoppers hold umbrellas as they walk, following the coronavirus disease (COVID-19) outbreak, at Oxford Street in London, Britain on December 16, 2020. REUTERS / Toby Melville

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LONDON, December 14 (Reuters) – British public inflation expectations over the next five to ten years have risen slightly this month to their highest level in eight years, according to a survey by the bank on Tuesday American Citi and the polling company YouGov.

In news that could baffle the Bank of England as it decides to raise interest rates on Thursday, long-term inflation expectations rose to 3.8% in December from 3.7% in November. This matches the September reading which was the highest since the third quarter of 2013.

12-month expectations were unchanged at 4.0%. Both measures are well above their long-term averages, Citi said.

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Citi said it did not think that data alone would be enough to prompt the BoE to raise interest rates on Thursday, given concerns from the central bank over the Omicron coronavirus variant.

“Instead, we expect upward pressure to keep the bank on track for a rate hike – most likely in February,” its economists wrote in a note to clients.

Some BoE policymakers are placing greater emphasis on long-term measures of inflation expectations, which could suggest that the public is losing confidence in the BoE’s ability to meet its medium-term inflation target of 2%.

Short-term measures of inflation expectations are further influenced by the latest inflation data, and Citi said they have come down since fuel shortages ended in October.

Consumer price inflation hit a 10-year high of 4.2% in Britain in October and economists polled by Reuters expect data for November, due for release on Wednesday, to show a further increase in inflation to 4.7%.

Citi said it expects inflation to hit 6.4% in April 2022 – a level not seen 30 years earlier – as regulated home energy prices are expected to rise sharply.

Earlier on Tuesday, the International Monetary Fund urged the BoE not to succumb to “inaction bias” when it juggles the trade-off between inflationary pressures and the lingering risks to growth from the COVID-19 pandemic. Read more

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Additional reporting by William Schomberg

Our Standards: Thomson Reuters Trust Principles.


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