Households in the United Kingdom continue to expect inflation to stay high in the near term, with a widely watched survey showing short-term expectations unmoved even as the Bank of England lowers interest rates.
A joint survey by Citi and YouGov published this week found that Britons expect inflation to average 4% over the next twelve months, unchanged from the previous month. While this level is significantly lower than the peaks of 2022, it remains well above the central bank’s 2% target and suggests persistent concerns among consumers about the cost of living.
Longer-term optimism softens the picture
The same survey indicated a modest easing in longer-term expectations. Households’ view of inflation five to ten years ahead dipped to 3.9% from 4.2%, the lowest level since February. Economists say this decline signals tentative confidence that monetary and fiscal measures may eventually tame price growth, though the path is expected to be uneven.
Markets interpreted the findings as a mixed signal for policymakers. The Bank of England cut interest rates earlier this month, but four members of its Monetary Policy Committee opposed the decision, arguing that inflation risks were not yet sufficiently subdued. Analysts note that sticky short-term expectations could make it harder for the Bank to justify further cuts without clearer evidence that underlying pressures are easing.
Persistent household pressures
The survey results reflect ongoing strains on UK households. Services inflation, particularly in housing, insurance and recreation, has proven stubborn. Food price increases have slowed, but energy bills remain volatile, with Ofgem’s next cap adjustment due at the end of August expected to determine the trajectory into the autumn. Economists warn that if households continue to believe inflation will remain high, wage demands may remain elevated, embedding further cost pressures into the economy.
Political and fiscal backdrop
For Chancellor Rachel Reeves, the survey underscores the challenge of restoring economic stability ahead of the autumn budget. Treasury officials are preparing measures to plug a substantial fiscal gap while navigating fragile consumer sentiment. Elevated inflation expectations add to the difficulty: any perception that fiscal policy could fuel price growth risks undermining market confidence.
What to watch next
Attention now shifts to the next set of official inflation data, due in September, and to Ofgem’s energy cap announcement. Both will shape the Bank of England’s policy outlook and could either reinforce or soften current household expectations. Analysts also highlight wage settlements in the public sector as a key barometer of whether inflation expectations are filtering into actual pay demands.
While long-term expectations easing to 3.9% is encouraging, the persistence of near-term anxiety at 4% illustrates the challenge of convincing the public that the inflation battle is being won. For policymakers, the latest figures serve as a reminder that credibility must be reinforced through both monetary discipline and fiscal prudence.
REFH – Newshub, 23 August 2025
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