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LONDON, Nov 30 (Reuters) – British public expectations for inflation in the coming years eased further in November from a record high in August, a monthly Citi/YouGov survey showed, suggesting less pressure on the Bank of England to raise rates.
The British central bank looks closely at surveys of inflation expectations to see how likely businesses are to charge higher prices and whether workers want bigger pay rises, which could potentially prevent higher rates of inflation.
Consumer price inflation hit a 41-year high of 11.1% in October, driven largely by rising energy prices as well as post-pandemic disruptions and labor shortages.
However, the Citi/YouGov survey showed inflation expectations over the 5- to 10-year period fell from 4.2% in October to 3.9% in November, well below the 4.8% hit in August. Between 2016 and 2020, when inflation was around the BoE’s 2% target, these expectations averaged 3.0%.
“Risks to medium-term price stability remain elevated. But for now, we think immediate risks are contained,” Citi economist Ben Nabarro said.
The BoE is more likely to raise interest rates by half a percentage point to 3.5% at its December meeting, rather than repeat November’s 75-basis-point hike due to falling inflation expectations, he added.
Economists’ forecasts for a peak in British inflation are now lower than in August when inflation expectations peaked, largely due to measures to cap household energy bills and evidence that Britain is entering recession.
The November survey showed that the public’s expectations for inflation over the 12-month period fell to 6.1% from 6.2%, based on the longer duration of the City’s two separate year-ahead measures.
A new measure by the City and YouGov to better capture double-digit inflation expectations fell to 7.3% from a peak of 10.3% in August.
YouGov polled 2,004 adults on November 22 and November 23 for the survey.
Reporting by David Milliken Editing by Gareth Jones
Our Standards: The Thomson Reuters Trust Principles.
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