The indicator for UK consumer inflation expectations, published by the Bank of England, has been revised upwards, overshooting the BoE’s inflation target.
Consumer inflation expectations at 2.2%
UK consumer inflation expectations, an indicator for consumers expectations of price inflation over the coming 12 months, has been revised upwards from 2% to 2.2%.
This figure overshoots the BoE’s aim for inflation of 2%.
High consumer inflation expectations can have an adverse effect on the economy, as consumers will aim to save more if they believe prices will be high in the future.
BoE under criticism for expansionary policy
The BoE Monetary Policy Committee has recently been under criticism for acting to quickly in implementing expansionary monetary policy measures to combat possible recessionary pressures on the UK economy, following the Brexit-vote.
Lately, a cohort of data have suggested that the UK economy is in good health, two months after the vote to leave the European Union. Last week, the IMF conceded in a note, that initial weaknesses in the financial markets seem to have been only of a short term nature and that the Brexit has not taken the adverse effect initially thought.
Too much stimulus could have the effect of raising inflation expectations beyond the target, causing the adverse effect effect of reduced spending to favour saving as described above.
Carney defends BoE policy approach
However, in an inquisition by the Treasury Select Committee this Wednesday, BoE governor Mark Carney defended his approach to monetary policy. According to Carney and many analysts, it is still to early to rule out that Brexit will have long-term adverse effects on the UK economy in the future. While it does not seem like the vote caused a grave reduction in economic activity in the two months after the vote, it cannot be concluded that negative developments have been completely averted.
Katharina Fleiner 09/09/2016