UK Households Expect Higher Inflation for First Time Since 2023
(Bloomberg) -- British households expect the pace of price rises to tick upwards in the next 12 months according to a Bank of England survey that underscores concerns Chancellor of the Exchequer Rachel Reeves’ big-spending budget in October may stoke inflation.
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Britons see inflation rising to 3% over the next 12 months, up from 2.7% last quarter and the first increase in expectations since Aug. 2023, according to the quarterly Inflation Attitudes Survey, published on Friday. Inflation was at 2.3% in October. Households also upgraded their expectations for each of the next five years, with a large majority saying they expected the economy to weaken as a result of a faster rise in prices.
The numbers provide yet another sobering read for the Labour government after data released earlier Friday showed gross domestic product unexpectedly shrank for a second month in October. That raises the specter of a fourth-quarter contraction, and highlight the challenge Prime Minister Keir Starmer faces if he’s to meet a pledge to deliver the fastest growth in the Group of Seven industrialized nations.
The BOE survey was conducted Nov. 8 to Nov. 11, just after Labour unveiled about £70 billion ($89 billion) in extra spending to fix public services and boost investment. The UK’s fiscal watchdog warned the measures included in the budget would hit businesses and ramp up inflation, while the BOE is closely watching for signs of how Labour’s increase in payroll taxes will impact employment and pay.
Net satisfaction with the BOE in its performance reining in inflation turned negative at minus 1%, down from a 4% positive rating in August, according to the survey. With the exception of last quarter’s reading, sentiment toward the bank has been negative since May 2022. The BOE targets a 2% inflation rate.
Britons expecting interest rates will fall next year still outnumber those expecting a rise, yet higher inflation expectations have narrowed the gaps between the two camps. Around 33% of the people surveyed by the BOE expected borrowing costs to rise over the next year, up from 29% in August, while those expecting a fall declined four points to 34%.
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