Key facts
- Public inflation expectations in Britain increased in August, reversing recent declines.
- 12-month inflation expectations rose to 3.9% from 3.4% in July.
- Longer-term inflation expectations reached 4.1%, the highest since April.
- An alternative survey question indicated year-ahead inflation expectations rose to 10.3% from 7.8%.
- Long-run inflation expectations (5-10 years) hit a record 4.8%.
Public inflation expectations in Britain rose in August, reversing a recent downward trend, according to a survey by Citi and YouGov. Expectations for inflation over the next 12 months increased to 3.9% from 3.4% in July. Longer-term expectations for price growth over five to 10 years climbed to 4.1%, the highest level since April, and a record 4.8% in an alternative question format.
Citi noted this development was hawkish, especially given the Bank of England's concern that rising energy prices could lead to persistent inflation. The central bank is closely watching these expectations for signs that inflation, which peaked at 10.1% in July, might become entrenched. Citi economist Ben Nabarro suggested the data could prompt the Bank of England's Monetary Policy Committee to consider another half-point interest rate hike in September.
Before the COVID-19 pandemic, long-run inflation expectations typically ranged between 2.9% and 3.4%. The August increase in long-run expectations was the largest on record and the first rise since February. An alternative question in the survey showed year-ahead inflation expectations jumped to 10.3% from 7.8% in July. The Bank of England has forecast inflation to exceed 13% in October, with Citi predicting it could surpass 18% in January.