© Reuters. FILE PHOTO: People shop at Borough Market in London, Britain, on July 19, 2023. REUTERS/Anna Gordon/File photo

LONDON (Reuters) – Medium to long-term inflation expectations among the British public, closely watched by the Bank of England, rose in August, a survey published on Friday showed.

Five- to 10-year inflation expectations rose slightly to 3.3% from 3.2% in July, the survey by US bank Citi and pollster YouGov showed.

Public expectations for 12-month inflation rose from 4.3% to 4.4%.

The BoE is widely expected to raise interest rates for the 15th consecutive day on September 21 as it struggles with the highest inflation rate among the world’s major rich economies.

Expectations for the Bank of England to tighten monetary policy are now at their lowest level since June after surveys this week showed a weakening inflation outlook and Governor Andrew Bailey said a peak in interest rates was now “much closer”.

Interest rate futures at 1400 GMT showed a 69% chance of a quarter-point rise in interest rates to 5.5% on September 22 after the BoE’s next meeting, down from more than 80% earlier this week. The probability of another rate hike to 5.75% was 46% in December and peaked at 49% in February 2024, with investors expecting rate cuts to begin in about a year.

However, analysts believe that two more rate hikes may be excessive and that the BoE is likely to make only one more rate hike. Investors are also starting to prepare for this eventuality.

Citi said it expects the data to weaken further in the coming months as headline inflation declines.

“However, this data reaffirms that energy upside risks may continue to pose challenges, particularly in the coming winter,” Citi economist Benjamin Nabarro wrote in a note to clients.

The data “continues to be consistent with the idea that weak growth coupled with restrictive interest rates are now having the desired effect, with a growing share now expecting much lower long-term inflation, while some still expect much higher inflation.”

Source : www.investing.com

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