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UK inflation: Expectations growing?

The publics' expectations for inflation over the next 12 months rose slightly to 2.5 percent in February from 2.4 percent in November, a quarterly survey from the Bank of England showed on Thursday.

Consumer price inflation hit 3.5 percent in January, well above the BoE's 2 percent target, though the central bank expects it to fall back within target by the end of the year.

The public estimated in February that inflation was running at an annual 3.4 percent, compared to 3.2 percent in November

Much of the rise in inflation has been driven by one-off factors such as unfavourable base effects and a rise in value-added tax, as well as the weakness of sterling and higher commodity prices.

However, the BoE wants to ensure that expectations of above-target inflation do not get entrenched, leading to a long-term cycle of price rises and higher wage demands.

The Bank of England has kept interest rates at a record low of 0.5 percent since March 2009, and has spent 200 billion pounds of newly created money on purchases of financial assets to help the economy. The BoE decided on February 4 not to carry out more of these purchases for the immediate future.

Some 53 percent of Britons now expect interest rates to rise over the next year, compared to 6 percent who see a fall, giving a net balance seeing a rise of 47 percent, the highest since August 2007.

The survey showed that the public had grown more satisfied with the Bank of England over the past three months. There was a net positive balance of 28 percent in February -- the highest in two years -- up from November's 24 percent.

Polling company GfK NOP surveyed 4,142 people aged 15 and over across the UK between February 4 and February 16.

Source: www.Reuters.com