Expectations for inflation remain stable despite growing pressures on pound

THE BRITISH public’s expectations for inflation has remained stable in the three months to early August.

The Bank of England survey showed the public still expected inflation to stay steady despite this year’s rise in price growth after the Brexit vote.

The BoE said median expectations for inflation in a year’s time held steady at 2.8 per cent while expectations for inflation two years out edged down to 2.7 per cent from 2.8 per cent in the previous survey which was conducted in May.

Inflation in five years’ time was seen at 3.4 per cent, compared with 3.3 per cent three months earlier, returning to a peak last seen in May of last year.

Britain’s inflation rate broke through the BoE’s two per cent target earlier this year.

The rise has been blamed on the fall in the value of the pound since the Brexit vote in 2016, which has pushed up the price of imports.

British consumer price inflation held steady at 2.6 per cent in July after reaching 2.9 per cent, its highest level in nearly four years, in May.

The central bank last month predicted inflation would peak at nearly three per cent in October, although since then sterling has weakened further against the euro, meaning the pressure on prices from the weak currency may persist for longer than the BoE thought.

But most economists polled by Reuters said they expect the BoE will have to keep its benchmark interest rate at a record low of 0.25 per cent until at least 2019 as the country goes through the economically difficult process of leaving the EU.

In the BoE survey published on Friday, 32 per cent of respondents said rates might stay about the same over the next 12 months, compared with 31 per cent in May.

Forty two per cent of respondents expect rates to rise over the next 12 months.

The BoE is expected to make a statement on interest rates on Thursday.