Inflation expectations for the year ahead continued to rise in August, despite the recent falls in oil prices and mortgage rates, according to the latest Consumer Barometer from Lloyds TSB Corporate Markets.

The monthly survey asked 2,000 consumers to predict what the official rate of inflation would be in a year's time. On average, respondents said the official rate would be 5%, up from 4.8% in July.  This figure has risen in each of the previous 10 months.

Despite rising inflation expectations, the prospect of slower economic growth led to a smaller number of consumers predicting that interest rates may rise.  For the first time since April, when interest rates were last cut, the balance of consumers that predicted higher, rather than lower interest rates next year dropped 9% to 47% in August. Even so, 60% of consumers still reported that they believed interest rates would be higher in 12 months' time, versus 13% who predicted a fall.

Job security fears intensified in August, falling again to a new survey low.  The balance of respondents who felt more rather than less secure in their own job fell for the sixth successive month, to -19% from -17% in July.  On a more positive note, consumers' outlook for employment prospects in the UK improved slightly in August.  This was illustrated by the balance of respondents who believed prospects were better, rather than worse, than a year ago, which rose by 1% to -56%.

"Recent price cuts at the supermarket petrol pumps have so far had no effect on consumer inflation expectations," said Trevor Williams, chief economist, Lloyds TSB Corporate Markets. "This will be of urgent concern for the Bank of England, which has stated that inflation will fall back below its 2% target within two years. If inflation expectations continue to grow, bringing down actual price inflation is going to be increasingly difficult.

"The knock-on effect of this trend is that people will negotiate for higher pay rises and retailers will try harder to hike prices because the climate is more lenient towards inflation.  This will only hinder efforts to bring inflation under control."

---

Tag this article :