LONDON (MNI) – The Bank of England’s quarterly inflation attitudes
survey showed an unexpected rise in year ahead price
expectations, with the median rate coming in at 3.4% versus the 3.3%
seen in May, hitting its highest level since August 2008.

Public perceptions of the current rate of inflation remained
unchanged at 3.6% from the previous survey. Members of the BOE’s
Monetary Policy have expressed concern about high current inflation
outturns feeding through into elevated inflation expectations, and this
latest survey will add to those concerns.

The survey shows that the public, on balance, is satisfied with the
job the Bank of England is doing. The net satisfaction balance for the
BOE was 28% in August compared with 29% in May.

When asked about the future path of interest rates, 48% of
respondents expected rates to rise over the next 12 months, compared
with 52% in May. A net 43% expected rates to rise, down from 46% in the
May survey.

In all, 29% of respondents said interest rates had risen over the
past 12 months, compared with 23% in May, with a net 4% saying they had
risen.

The results of the BOE survey appear to be at odds with other
recent inflation expectation reports. A monthly one for Citi by
pollsters YouGov, found a marked fall in year ahead inflation
expectations in July but this was partially reversed in August.

The Citi/YouGov survey showed year ahead inflation expectations at
2.9% in August, up from 2.7% in July but down from the 3.0% peak in
June.

A Q3 survey for Barclays, the BASIX survey, found a sharp fall in
year ahead inflation expectations.

The significance of rises, or falls, in survey findings on public
inflation expectations is far from straightforward – and there is no
consensus among MPC members on the issue.

Views diverge among MPC members over whether there is any real
significance to elevated inflation expectations unless they impact on
wage bargaining. Newcomer Martin Weale, for example, has said he focuses
on whether inflation expectations are feeding through to wage bargaining
and present there is little or no sign of this happening.

With UK pay growth muted, MPC members have tended to add above
target inflation expectations to things they will “look through” in
setting policy.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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