British consumers are expecting inflation to increase at a faster rate in the coming year than three months ago, a survey by the Bank of England has revealed.
Despite a recent slowdown in inflation, with the consumer price index (CPI) dropping to a two-year low, it seems that Brits are cautious about the future.
The Bank of England’s inflation attitudes survey for May showed that the public expect average inflation of 3.7% over the next twelve months.
This is up from February’s inflation attitudes survey, which found that the public expected inflation of 3.5% over the next twelve months.
The survey also found that consumers expect inflation to be 3.4% in two years’ time, up from 2.9% in February. In a five-year forecast, consumers expected inflation to stand at 3.6% – up from 3.2% in February.
The survey is a good reflection of consumer confidence, but analysts have pointed out that the survey was carried out at a time when there was a spike in petrol prices.
“We suspect that if oil prices stay down near current levels, there will be an appreciable falling back in inflation expectations in the next surveys,” said Howard Archer of IHS Global Insight.
CPI currently stands at 3.0%, after a sharp drop from 3.5% in March. However, the rate is still above the government’s target of 2.0%.
While consumer predictions of inflation may currently be amongst the worst since the Bank of England’s survey began, changes in the manufacturing industry may offer hope for households.
Input prices, which are the prices manufacturers pay for raw materials, were found to have gone down by 2.5% in May, compared to the previous month.
This is the biggest slide in input prices since the end of 2008, and meant that output prices – those which are charged by manufacturers for their goods – was also down, by 0.2% compared to the previous month.
“All this is likely to feed through to lower CPI inflation in coming months,” said Michael Saunders, an economist at Citi.
The fall in prices at British factories is expected to translate into lower prices for UK households, putting more money back in consumers’ pockets.
“The message from domestic good prices is that concerns over ‘inflation stickiness’ in the UK may be a little overdone,” said David Tinsley, an economist at BNP Paribas.
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