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UK public confidence in the Bank of England’s approach to tackling inflation has fallen to a record low, according to official data released days before policymakers vote on a potential 15th consecutive interest rate rise.
In August, 40 per cent of Britons were dissatisfied with how the central bank was doing its job of setting interest rates in order to control the pace of price rises, according to an in-house survey published on Friday.
With only 19 per cent of people satisfied with the BoE’s performance, net satisfaction dropped to minus 21 per cent, down from minus 13 per cent when the question was last asked in May and the lowest reading since records began in 1999.
The findings will reinforce markets’ expectation that the BoE’s Monetary Policy Committee will raise interest rates by 0.25 percentage points to 5.5 per cent next Thursday, which would be the highest for 15 years.
Paul Dales, economist at the consultancy Capital Economics, said the fact that public dissatisfaction was not falling back with lower inflation “would imply the surge in inflation may have stripped the BoE of some of its credibility”.
“That could mean interest rates need to stay higher for longer in order to clamp down on inflation expectations,” he added.
In July, UK consumer prices rose at an annual rate of 6.8 per cent — down from 7.9 per cent in June and a peak of 11.1 per cent in October last year, but still more than three times the BoE target of 2 per cent and the highest in the G7.
BoE governor Andrew Bailey, BoE chief economist Huw Pill and Sir Jon Cunliffe, outgoing deputy governor for financial stability, have in recent weeks indicated that interest rates may not need to rise further.
But Catherine Mann, who also sits on the MPC, this week said “holding rates constant at the current level risks enabling further inflation persistence”.
Economists polled by Reuters expect inflation to have ticked up to 7 per cent in August when data is published next week, driven by fuel prices.
The survey in August also found that Britons expect inflation to average 3.6 per cent over the coming year, compared with 3.5 per cent in May.
While this is still well below the 4.9 per cent forecast in August 2022, the uptick will be a disappointment for policymakers as higher price growth expectations increase the risk of inflation becoming more embedded in price and wage setting.
Victoria Scholar, economist at the investment platform Interactive Investor, said the argument that the BoE’s policy decisions during the pandemic could have partly fuelled price growth had generated “a sense of unease towards monetary policymaking”. The central bank’s communication of its policymaking had at times been “muddled”, she added.
Separate official data published on Friday showed that in several services industries, pass-through of wage rises could explain “most” output price growth since 2019.
In many professional industries, such as law and accountancy, “labour costs have likely been passed through completely”, analysis by the Office for National Statistics found.
By contrast, in most of the manufacturing sector, even after large wage increases between 2019 and June 2023, “price growth was caused by other factors”, such as high energy costs and supply chain disruptions, the ONS said.