Business | Economy
UK inflation expectations plunge amid recession fears
Britons' expectations of inflation in the coming year plunged in November from a record high three months previously, a Bank of England survey showed.
- Reuters
- Published: 23:41 December 11, 2008
London: Britons' expectations of inflation in the coming year plunged in November from a record high three months previously, a Bank of England survey showed.
The BoE/GfK NOP Inflation Attitudes survey showed the median expectation for inflation over the coming year stood at 2.8 per cent compared with a record high of 4.4 per cent in August.
That was the biggest drop since the survey began in November 1999 and probably reflects the sharp drop in energy prices which had pushed up actual inflation to above five per cent this year.
When asked to give the current rate of inflation, respondents gave a median answer of 4.9 per cent compared with a series-high of 5.4 per cent in August - also the biggest quarterly fall on record. While policymakers had been concerned that high inflation expectations risked becoming entrenched, those worries have now been overtaken by fears the economy is heading into a long recession.
The BoE has already cut interest rate by a total of three per centage points since October to just two per cent and borrowing costs could fall further still.
Analysts say inflation will fall sharply below the two per cent target and could even head into negative territory as lower energy prices and a VAT reduction take effect.
Asked what would be "best for the economy" - higher interest rates, lower interest rates or no change, eight per cent of survey respondents said rates should go up, 46 per cent thought rates should go down and 24 per cent thought rates should stay where they are.
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