Finance bosses still have little faith in the Bank of England’s ability to get inflation under control, as Bank’s the latest survey of decision makers shows they believe the consumer price index will still be above-target in August 2026.
The Bank of England’s monthly decision-maker panel survey was conducted in early-to-mid August, after the ONS reported a sharper-than-expected fall in the rate of prices in June, which had been the first significant positive surprise since inflation peaked last year.
Business leaders’ one-year-out expectations of inflation improved, to 4.8%, but were still well above the Bank’s own projections that the rate will be below 3% at that time.
The Bank noted that “expected inflation has been gradually falling over the last year”.
The projected rate of inflation three years out, though, barely moved. At 3.2%, it was still above the Bank of England’s 2% target. If the rate were to stay above 3% until 2026, it would represent five years of prices rising more quickly than the target rate, a serious blow to Threadneedle Street’s credibility when it comes to achieving monetary stability.
The survey also found that the level of uncertainty facing decision-makers was unchanged, with 53% of finance bosses claiming they face high or very high levels of uncertainty.
The Bank of England has raised interest rates at each of its last 14 meetings, to the current rate of 5.25%. While inflation has fallen considerably, it is still a long way above the target at 7.3%.
Yesterday, Bank of England governor Andrew Bailey said the UK is “much nearer” to the top of the cycle of interest rates. However, he cautioned that inflation could rise again in August due to the impact of fuel prices.
“I think we are much nearer now to the top of the cycle ... based on the current evidence,” he said.