Bank's survey allays fears of deflation

Published on Thursday 11 June 2009 21:38

DEFLATION fears showed signs of easing yesterday, after data revealed that, for the first time since last August, there had been a rise in inflation expectations for the year ahead .

Members of the public thought inflation for the coming year would be 2.4 per cent, according to the latest Bank of England/GfK NOP inflation attitudes survey conducted in May.

It marks a rise from 2.1 per cent in February and ends a recent sharp downward trend that saw inflation expectations plunge from a record high of 4.4 per cent last August.

Economic woes have hit companies' pricing powers and dragged energy and fuel bills lower, leading to concerns of a deflationary spiral in the UK.

The rate of official Consumer Prices Index (CPI) inflation was 2.3 per cent in April, down from 2.9 per cent in March. It is still above the government's 2 per cent target, but CPI has fallen significantly since the recession took hold. And Retail Prices Index (RPI) inflation is currently in negative territory.

But yesterday's survey data offered hope that the UK would avoid a sustained period of deflation, according to economists.

The inflation expectation increase comes after a raft of cheerier news on the economy, suggesting the UK is pulling out of recession. A think-tank has estimated UK gross domestic product grew by 0.2 per cent in April and 0.1 per cent in May.