Public expects inflation to fall

Consumers expect household inflation will fall to an average of 3.9 per cent over the coming year, signalling the first drop in more than two years, according to a Bank of England survey.

If inflation falls it will ease the pressure on the Bank to increase interest rates from its record low of 0.5 per cent.

The last time year-ahead inflation expectations from members of the public fell was in February 2009.

In April the consumer prices index rate of inflation stood at 4.5 per cent, fuelling concern that consumers would demand higher wages in an effort to keep up with the rising cost of living and subsequently contribute to further inflation in the process.

The Bank insists that inflation will begin to come back towards its 2 per cent target next year, but economic data is being monitored carefully to check that wage expectations do not increase as prices rise.

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