UK households have given a strong indication of their fears over current inflation levels and its future impact on their finances. GfK NOP has conducted a poll on behalf of The Bank of England that reveals household inflation expectations are at their highest level for more than two years. However, in an encouraging sign to policymakers, fewer than one in ten felt that demanding higher wage settlements would offset the impact of high inflation. The respondents believe that inflation is now at 4.4 per cent, up from 3.9 per cent, the level given when the same question was asked in November. The next inflation report is due next Tuesday (22nd March). Respondents gave four per cent as the median level they expected inflation to be at in the coming 12 months and 3.4 per cent as the average level in the following year.
The pressure on the Bank of England has been increasing to raise interest rates to combat inflation, though last week’s encouraging trade deficit figures and the current nuclear crisis in Japan and the economic repercussions will lessen the pressure to increase interest rates. The inflation expectations report will encourage the bank that the public understand the situation, for the time being at least, and see a trade-off in not receiving large pay increases as part of the battle to keep inflation down. The survey revealed that nine per cent of respondents want higher wages but 65 per cent would rather shop around for better deals to compensate for high inflation.
Fears over job security, with unemployment just above 2.5 million will also lower wage increase settlement expectations.