UK inflation expectations ease as BoE considers next rate hike

Inflation expectations in the United Kingdom fell in April, according to Citi, providing some respite to the Bank of England, which is anticipated to announce its 12th consecutive interest rate hike next week, with investors banking on additional hikes after that.

Citi said its monthly poll, conducted by market research firm YouGov, revealed that public expectations for inflation in the next 12 months decreased to 5.2% in April from 5.4% in March, and predictions for the next five to ten years fell to 3.6% from 3.7%.

Citi analyst Benjamin Nabarro said the findings, which were “well above pre-pandemic ranges,” highlighted Britain’s severe inflation problem – the country’s key gauge of consumer price increases remains above 10%.

The BoE is widely expected to raise borrowing costs again on May 11 after its monthly monetary policy meeting, with inflation running at five times its 2% target.

Investors are putting a 92% probability on a 25 basis-point increase in Bank Rate to 4.5% and roughly 50 chance of hitting 5% by August.