UK household inflation expectations soar in October

Posted on November 29, 2016

Brace yourself for rising prices.

A measure of UK inflation expectations has soared above its long-term average, in another sign that households are readying themselves for an upsurge in consumer prices after the Brexit vote.

The European Commission’s 12-month consumer inflation expectations gauge hit 38.7 in October, climbing more than 20 points from the 18.1 balance reported in September.

The indicator, which fell as low 4.5 earlier this year, is now above its long-term average of 22.5 compiled since 1990 and reflects the impact a weaker pound is set to have on the UK’s headline inflation rate which has lumbered below 2 per cent since 2014.

Following the Brexit vote, the Bank of England has penciled in its largest sustained inflation overshoot since it became independent in 1997. The central bank estimates inflation will average above-target at 2.7 per cent in 2017 and 2018.

Higher inflation is expected to crimp consumer spending next year, with the Office for Budget Responsibility expecting real income growth in the UK to fall flat in 2017.

The UK’s current inflation rate is 0.9 per cent, slipping from 1 per cent in September but is expected to climb sharply over the next 12 months as the effect of a falling pound is felt in the inflation basket.

“Sterling’s substantial drop is building up price pressures through the supply chain as was evident in sharply higher producer output and input data for October”, said Howard Archer at IHS Global.

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