LONDON (Reuters) -The British public’s expectations for inflation over the next 12 months rose to 4.2% in October, the highest since April, a monthly survey by YouGov for U.S. bank Citi showed on Friday.
Citi said the reading was likely to reinforce the wariness some members of the Bank of England’s Monetary Policy Committee feel about cutting interest rates further, even after September inflation came in below the BoE’s 4% forecast.
Financial markets moved rapidly to price in a nearly 80% chance of a further quarter-point rate cut this year after weak labour market data last week was followed by lower-than-expected headline inflation.
Previously, the next BoE rate cut had not been expected until March or April next year after August’s rate cut was only approved by a narrow 5-4 margin due to some policymakers’ fears that inflation was becoming too persistent.
“We think inflation expectations remain an important aspect of the monetary policy framework, particularly for those who are cautious about further cuts,” Citi economists Callum McLaren-Stewart and Michel Nies wrote.
“For those who favour a hold, a further drift in expectations may be at least as significant as an undershoot in realised CPI,” they added.
Year-ahead inflation expectations had stayed in a narrow range of 3.9% to 4.0% for the previous five months on Citi’s measure.
Long-term inflation expectations also rose to 4.2% in October from 4.1% in September, Citi said.
The results were based on a YouGov survey of 2,005 adults conducted on October 21 and October 22.
(Reporting by David Milliken; editing by William James)
