According to a Citi and YouGov public poll, expectations for inflation over the coming year currently stand at 3pc, compared with 2.9pc in September.
“Inflation expectations for the year ahead have not been higher since September 2008,” Citi economist Michael Saunders said. Inflation was then running at 5.2pc – a 16-year high – compared with 3.1pc currently.
Policymakers are concerned that rising inflation expectations could become self-fulfilling by working through to prices and wage settlements. Mervyn King, Governor of the Bank of England, has previously warned: “If that were to occur, it would be costly to bring inflation down.”
Interest rates would have to rise, potentially crippling the recovery which is reliant on a loose monetary policy offsetting the spending cuts and tax rises. Mos