Households sharply revised down their expectations for UK inflation last month, in a sign that wage settlement pressures may begin to ease.
(Bloomberg) — Households sharply revised down their expectations for UK inflation last month, in a sign that wage settlement pressures may begin to ease.
Individuals surveyed by the Bank of England said they thought CPI inflation would be at 3.9% in 12 months, down from 4.8% when asked in November.
The data indicate that households are becoming more confident in the BOE’s ability to get the cost-of-living crisis under control.
This will come as a relief to policymakers on the rate-setting Monetary Policy Committee, who are worried that high inflation expectations are causing workers to demand increased wages, adding to the problem.
UK 2-year yields — which are among the most sensitive to changes in monetary policy — fell as much as 17bps to 3.25%, while money markets eased rate hike wagers by up to 14 basis points. That priced a 4.27% terminal rate by June.
Official data to be released on Wednesday, however, could show inflation falling from its January rate of 10.1% into single digits for the first time since last August. Households surveyed in February put the current inflation rate at 9.2%.
Goldman Sachs, meanwhile, has predicted that inflation could fall below the BOE’s 2% target by the end of this year after the £2,500 ($3,030) cap on energy bills was extended by Chancellor Jeremy Hunt in his budget this week.
The BOE is set to unveil its latest interest-rate decision on Thursday, with economists predicting a 25 basis-point hike to 4.25%. The central bank has delivered an unprecedented series of increases since December 2021 in an effort to prevent a wage-price spiral.
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–With assistance from James Hirai.
(Updates with market reaction.)
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