The January survey by U.S. bank Citi revealed an increase in British public expectations for inflation, potentially influenced by concerns about shipping disruptions in the Red Sea. Anticipations for inflation over the next five to 10 years reached 3.6%, the highest since April 2023, up from December’s 3.4%. Short-term expectations for the next 12 months rose to 3.9%, a two-month high from December’s 3.5%.
Citi economist Benjamin Nabarro attributed the rise to reporting on shipping disruptions and energy supply risks. January’s consumer price inflation data indicated an increase of 4.0% from November’s 3.9%. Despite maintaining interest rates at a nearly 16-year high, the Bank of England suggested the possibility of rate cuts amid falling inflation, cautioning against risks from trade disruption, particularly in the Middle East and the Red Sea.
While public surveys don’t directly predict inflation, the Bank of England considers elevated expectations a factor that can impede the decline in inflation once the initial cause diminishes. A recent purchasing managers’ survey revealed British manufacturers grappling with inflation linked to Red Sea tensions, where Iranian-backed Houthi militants’ attacks disrupted global shipping.
Citi anticipates a decline in public inflation expectations in the coming months unless Red Sea conflict disruptions intensify. Economist Nabarro believes current data aligns with well-anchored inflation expectations and foresees further reductions in price growth.
