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Inflation Expectations At 33 Month High

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Fresh inflation threat to weak UK economy

The strains on the UK economy have been laid bare by new data showing that inflation expectations are rising to dangerous levels at the same time as growth is slipping and consumer confidence evaporating.

Piling the pressure on the Bank of England, the June survey on inflation expectations by YouGov and Citi found that the general public expects prices to rise over the coming year at their fastest rate since September 2008.

With an expectation of a rise of 3.9pc, the reading is a sharp increase from 3.4pc in May and 2.9pc in April.

The median for inflation expectations over the next five to 10 years surged from 3.5pc in May to 4.1pc – the highest since the survey began in late 2005.

The findings are likely to alarm the Bank's rate-setting committee, which is split over whether to hold or raise rates from their historic 0.5pc low.

Paul Tucker, the deputy Governor, on Tuesday revealed that he is "one of those worried about the possibility of an upward drift in inflation expectations".

The YouGov report came as a bleak survey by GfK NOP showed that over the past month the public has become more miserable about their personal finances and the economy. The survey's consumer confidence index fell by four points to minus 25, a decline only topped by January this year over the past 12 months.

In a further blow to the embattled high street, the survey's measure judging people's view of the climate for major purchases fell again.

Questions about the strength of the recovery arose again following official data that showed the UK had suffered the biggest slump in services output for more than a year in April, alongside weak bank lending in May.

Services output contracted by 1.2pc in April after a 0.8pc increase in March, driven by a sharp fall in wholesale activity, the Office for National Statistics said. The fall was the biggest since January 2010, when heavy snow caused disruption.

However, the ONS stressed that "April was an unusual month" because of the royal wedding and extra public holiday. The services industry accounts for three-quarters of the economy.

Separate data from the Bank of England showed lending to small business fell for the second month running, dropping by £1.8bn in May and renewing concerns about its support for the sector. Mortgage approvals remained weak, rising only slightly to 45,940 in May, and consumer credit was up only £173m.

Surely the MPC would have to raise rates by at least 25 bps to retain any credibility after this???

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This is a signal that ought to worry the vigilant. Let's see if vigilance turns into action. I doubt it.

With expectations now 2% above the top of the inflation target, it would be time for a rational central banker to take action. A lack of action implies a lack of rationality.

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Nice thread.

Except that in your haste to post you've written inflation each time you meant to write deflation.

I thought I'd mention it before RB gets here.

After all, "deflation cometh".


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  • 444 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
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      • up 5%

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