UK expects 5% inflation

25-08-2008

UK expects 5% inflation
Brits now anticipate inflation will rise to over five per cent.

While the official consumer prices index (CPI) now stands at 4.4 per cent, the latest Lloyds TSB Corporate Markets consumer barometer shows consumers expect this to hit five per cent in a year's time.

Consumer expectation of inflation has risen for the last ten months.

This compares with Bank of England predictions that point to CPI at five per cent by the end of the year – with an outside chance six per cent – before dropping over the course of 2009.

Most consumers also predict interest rates to rise – counter to most predictions of interest rates falling to aid the economy as inflation falls.

Some 60 per cent of people polled reported they believed interest rates would be higher in 12 months’ time, versus 13 per cent that predicted a fall.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "If inflation expectations continue to grow, bringing down actual price inflation is going to be increasingly difficult.

"The knock-on effect of this trend is that people will negotiate for higher pay rises and retailers will try harder to hike prices because the climate is more lenient towards inflation. This will only hinder efforts to bring inflation under control."

He added: "This will be of urgent concern for the Bank of England which has stated inflation will fall back below its 2 per cent target within two years."

Consumer pessimism over the job market was also highlighted by the research.

A total of 62 per cent thought employment prospects would be worse than a year ago, while just six per cent thought they would improve.

Some 30 per cent of people thought their job was less secure than a year ago, and 11 per cent felt more secure.


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