A recent survey conducted by a group of decision-makers at the Bank of England in August has shown a downward trend in inflation expectations for both prices and wages. This is seen as a step in the right direction for the central bank. According to the survey results, businesses' expectations for inflation over the next three years have decreased from 3.3% to 3.2%. Similarly, expectations for inflation over the next year have dropped from 5.2% to 4.9%. In terms of wages, the expected increase over the next year has slightly declined from 5.2% to 5.1%.
However, it is important to note that inflation rates are still declining at a sluggish pace, and expectations remain historically high, which increases the risk of inflation being above the target in the medium term. Additionally, the actual data on domestic cost pressures is hotter than what the central bank had anticipated. Consequently, analysts believe that it is unlikely to pause the rate hikes at present, and they expect the peak interest rate to rise from the current 5.25% to 5.75%. Furthermore, based on expectations for future data and the determination of the central bank to combat persistent price pressures, analysts believe that a rate hike in September is possible.
