UK households and businesses are betting on lower inflation than they have in years, according to a new Citi/YouGov survey. The data shows inflation expectations have fallen to levels not seen since before the Iran war, a shift that could take some heat off the Bank of England as it weighs its next policy moves.
The Citi/YouGov survey findings
The survey, conducted by Citi and YouGov, tracks what the public expects for inflation over the next 12 months. The latest reading dropped sharply, nearing the pre-Iran war baseline. That's a significant move: for months, expectations had been elevated, partly due to volatile energy markets and lingering supply-chain disruptions. Now, the numbers suggest consumers and businesses are betting the worst of the price surge is behind them.
Lower inflation expectations can become self-fulfilling. If people believe prices will rise more slowly, they may demand smaller wage increases and companies may feel less pressure to hike prices. That dynamic could ease the Bank of England's dilemma. Threadneedle Street has been wrestling with whether to keep raising rates or hold steady. The survey's results, if they persist, could tilt the balance toward a pause. But the BoE will be watching closely: one survey doesn't make a trend.
Energy markets remain a wildcard
Despite the encouraging survey, the path ahead isn't smooth. Energy markets are still volatile, and any new shock — a supply disruption, a geopolitical flare-up — could quickly reverse the drop in expectations. The Iran war reference in the survey is a reminder of how external events can upend domestic forecasts. The BoE's own projections have been wrong before, and policymakers know it. They'll need to see sustained evidence that inflation expectations are anchored before they change course.
The next few months will be telling. If energy prices stay calm and the survey's trend holds, the Bank of England may find room to ease off. If not, the pressure will be back on.
