Expectations of inflation at 13-year low

THE public’s expectations for inflation have fallen to the lowest level in the more than 13 years – easing pressure on the Bank of England to raise interest rates.

A quarterly survey by the central bank showed consumers believe inflation will run at 1.9pc over the coming year. That was down from 2.5pc in November and the lowest level since late 2001. However, it suggested that the public is not overly concerned about deflation.

Expectations of price movements are closely watched by the central bank as they can influence the overall rate of inflation.

Inflation fell to 0.3pc in January – the lowest level since 1960 – as the collapse in the oil price and the supermarket price wars eased pressure on family finances.

Bank governor Mark Carney has said ‘it is more likely than not’ that Britain will experience a ‘temporary’ period of deflation or falling prices this spring.

Officials at the central bank have also warned that if low inflation threatens to turn into a dangerous bout of deflation they could cut interest rates further towards zero. But Carney and others have been at pains to point out that it is more likely than not that the next move in interest rates will be up. The Bank cut rates to 0.5pc in six years ago in March 2009.

Howard Archer an economist at IHS Global Insight said ‘there is crucially no evidence that deflation – let alone prolonged, meaningful deflation – is considered a possibility’.