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Cable Ticks Higher On UK Inflation Expectations

James Boston
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Cable Ticks Higher On UK Inflation Expectations

Consumers in the UK anticipate general price rises to moderate over the next 12 month according to the latest report by the Bank of England (BoE). The Consumer Inflation Expectation Report is now indicating that the UK general public believe that prices will rise by 2.5% over the next year as compared to a collective forecast of a 2.8% rise reported last month.

This report requires a certain amount of discounting in order to provide any meaningful analysis, there is very little chance that the rate of price growth in the UK will rise to these levels in the coming months, in fact it is unlikely that the pace of inflation will rise anywhere close to the BoE’e targeted level of 2%. It is the trend that is important in this indicator and the fact that it is consistently trending lower has some implications for consumer behaviour in the medium term. If the perceived rate of price rises is expected to moderate then there is less urgency on consumers to make larger scale purchase and this tendency to postpone such purchases will result in a curtailment of retail sales particularly in the more durable goods class.

The UK’s enviable rate of recovery is very much consumer centric, loose fiscal policy put money back in the pockets of individuals and a visibly rising economy has empowered them with the confidence to spend it. At this stage in the economic recovery cycle it would be prudent to exchange some growth for stability in order to ensure a lasting outcome, this is what today’s Consumer Inflation Expectation report would imply is happening. This however is not without risks. Fiscal policy is set to tighten sharply in order to eliminate the overburdening deficit, as announced by the Chancellor earlier in the week, this could lead to a situation where postponed consumer purchases get cancelled in which case growth does not become stability.

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