LONDON: Britons expect a sharp rise in inflation over the coming year following the plummet in the value of sterling after Britain’s vote to leave the European Union, and more now believe a hike in interest rates is on the way, a Bank of England survey showed.
The survey published on Friday showed average public inflation expectations over the next 12 months rose to 2.8 per cent in November from 2.2 per cent in the previous survey in August.
Taking a five-year view, Britons expected inflation of 3.1 per cent, slightly higher than the 3.0 per cent forecast of three months earlier.
Forty-one per cent of respondents in the survey expected interest rates to rise over the next 12 months, compared with 21 per cent in August.
The Bank of England and many private economists have said/sinflation is set to climb sharply in 2017.
After the EU referendum in June, sterling fell as much as 20 per cent against the US dollar but has recovered slightly to be down around 16 per cent.
So far, the British economy has largely weathered the initial Brexit shock better than many expected.
But a rise in inflation next year is likely to strain the spending power of households who have driven the recovery in the economy since the financial crisis of 2007-09.
Britain’s inflation rate in the 12 months to October stood at 0.9 per cent and the Bank has previously said it expects it to peak at 2.8 per cent in early 2018. Bank of England Governor Mark Carney has said the BoE is prepared to let inflation run above its 2 per cent target in 2017 but there were limits to tolerating the overshoot.
The Bank of England/TNS survey polled 2,095 people in 368 randomly selected output areas across Britain from Nov. 4 to 8.
The BoE said on Nov. 3 that it was no longer expecting to cut interest rates again during 2016 and it moved to a neutral stance about its next monetary policy move.