UK inflation expectations steady for year ahead, rise further out

Shoppers are reflected in a shop window as they walk along Oxford Street on the last Saturday before Christmas, in London

LONDON (Reuters) – The British public’s expectations for inflation over the coming year held at their highest level in more than three years last month but rose for inflation further ahead, a monthly survey by bank Citi and polling firm YouGov showed on Thursday.

Short-run inflation expectations stood at 2.6 percent unchanged from January, the highest since December 2013 and above their long-run average of 2.4 percent.

The Bank of England has forecast that inflation – which is rising fast after last year’s Brexit vote pushed down the value of the pound – will peak at just over 2.7 percent in mid 2018.

Citi said longer-run inflation expectations for the next five to 10 years rose to 3.2 percent from 3.0 percent in January, the highest since January 2014 but not above the series average since it was launched in 2005.

“We cannot rule out second-round effects when households and businesses negotiate wages and rents, perpetuating higher inflation beyond the current spike,” Citi economists Christian Schulz and Ann O’Kelly said.

“If the economy does not cool over the coming quarters, the BoE’s Monetary Policy Committee may come under pressure to raise Bank Rate from its current low of 0.25 percent, despite Brexit uncertainty.”

The survey was based on a sample of 2,059 adults polled between Feb. 20 and 21.

(Reporting by William Schomberg; Editing by Alistair Smout)