The British public’s expectations for inflation are at the lowest level in more than 13 years as the nation adjusts to the impact of lower oil prices and the prospect of the first bout of deflation in more than half a century.
Inflation expectations for the year ahead fell to 1.9% when the public were surveyed by the Bank of England in February, compared with 2.5% when they were asked in November.
When asked what the current rate of inflation was, they answered 2.2%, compared with 2.8% in November.
Inflation actually fell to a record low of 0.3% in January in the latest available data, driven down by lower petrol and food prices.
Mark Carney, the Bank’s governor, said last month that UK inflation will actually turn negative in the coming months, for the first time in 55 years.
However, he stressed that the UK was not facing the kind of dangerous deflationary spiral feared in the eurozone.
The Bank conducts a quarterly survey of the public’s inflation expectations in order to check that they are not wildly at odds with the Bank’s own guidance on prices.
Commenting on the latest survey, Howard Archer, chief UK economist at IHS Global Insight, said: “The Bank of England will carefully note the further drop in the public’s inflation expectations in February, and if they fall further over the coming months, it will increase the likelihood that the monetary policy committee will hold off from raising interest rates during 2015.
“There is always the risk that a sustained downward drift in consumer inflation expectations could limit wage growth and increase the risk of prolonged, well below-target consumer price inflation.”
