A new nationwide consumer poll from Lloyds TSB has
suggested that concerns about food, fuel and energy costs
are driving expectations of high inflation in the year to
come.
The consumer barometer identified that average expectations
for inflation in the next 12 months were found to approach
four per cent, as opposed to the official three per cent
set out by the Bank of England's monetary policy
committee's (MPC's) quarterly retail price index (RPI)
report. Conducted earlier this month, the barometer
questioned 2,000 adults throughout the UK and found that 90
per cent felt that average prices had risen in the past 12
months, compared to the 63 per cent recorded in May 2007. A
further 89 per cent said they expected prices to increase
again in the next 12 months. Both of these results were at
their highest level since 2004.
Respondents to the study predicted that by May 2009,
inflation would stand at 3.8 per cent, up from 3.6 per cent
estimated in last year's survey. Lloyds TSB also suggested
that consumer confidence in employment and their own job
security was also slipping. Nearly a quarter (23 per cent)
of respondents said they felt their job was less secure
than it was a year ago, while 48 per cent of people said
that overall employment prospects in the UK had got worse
in the past 12 months.
For those who have found themselves struggling with general
living expenses, taking out a low-rate loan may be of
assistance in meeting the costs of food and energy.
Meanwhile, consumers who have become increasingly indebted
as living costs soar, taking out a debt consolidation loan
may provide a lifeline.
Trevor Williams, chief economist at Lloyds TSB Corporate
Markets, said: "Currently at three per cent, there's no
denying that the immediate outlook for inflation remains
high. But the Bank of England's latest report projected
that inflationary pressures would ease in the long term as
food and fuel prices start to fall next year. In stark
contrast to this, our latest barometer shows that consumers
do not believe prices will ease and so inflation
expectations for the next 12 months are tipping four per
cent. The MPC continues to highlight the need to anchor
inflation expectations as key to bringing actual inflation
under control."
He added that any future cut in the interest rate would
send the wrong message to consumers. If consumer
expectations of inflation continue to rise, the UK will be
in for a period of flat or rising interest rates in order
to bring inflation back under control, Mr Williams
concluded.
In a press conference following the MPC's May RPI
publication, Bank of England governor Mervyn King
attributed the current rise in inflation to increasing
global costs of food and energy. He added that consumers
will continue to feel the effect of these inflated prices
over the course of the next 12 to 18 months and as such, he
asserted that it "doesn't make sense" to focus on bringing
inflation down to the Bank's target level of two per cent
within this timeframe. However, Mr King said that "we
should certainly" look to tack inflation back to this level
in two years' time.
Although it held the base rate of interest in its last
decision, the MPC has made two cuts so far this year. In
April, the base rate was cut by a quarter of a percentage
point to stand at its current level of an even five per
cent.
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