UK Consumers Turn Less Gloomy About Inflation, BOE Says

Britons became less pessimistic about inflation in the second quarter as energy prices continued to fall, according to a Bank of England survey.

(Bloomberg) — Britons became less pessimistic about inflation in the second quarter as energy prices continued to fall, according to a Bank of England survey.

Questioned in May, consumers expected prices to rise 3.5% over the following 12 months, down from 3.9% in February and a peak of 4.9% in August, the poll of public attitudes to inflation found.

They were also less gloomy about the outlook in the 12 months after that but still expect 3% price rises in five years’ time.

Inflation expectations are closely watched by the central bank as policymakers battle to tame an inflation rate that is still running at more than four times the 2% target.

While prices growth is easing, it is doing so more slowly than had been forecast. That has fueled expectations that officials will keep raising interest rates through the summer. Officials fear inflation becoming embedded if consumers build high expectations into their wage demands.

The public may be underestimating the strength of inflation. Asked in May last year, they expected prices to rise 4.6% over the following 12 months. Official figures next week are expected to show they gained almost twice as much, with Bloomberg Economics predicting inflation eased only modestly to 8.6% last month.

The survey by Ipsos also showed increasing dissatisfaction about the way the Bank of England is doing its job. An index tracking satisfaction with the BOE dropped to minus 13 from minus 4. That’s the lowest since records started in 1999 shortly after the Treasury handed the central bank authority to set interest rates.

(Adds chart, outcomes versus previous expectations)

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