Inflation views survey is music to Carney’s ears

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BANK of England governor Mark Carney’s low-rates message appears to be getting through to the public after the number of people expecting borrowing costs to rise in the coming year fell to its lowest level in almost five years.

Recent “forward guidance” from the head of the central bank suggested interest rates will remain at their historic low of 0.5 per cent until unemployment falls below 7 per cent – something he expects to take about three years.

While some analysts have questioned this timescale, pencilling in a rate rise as early as next year, a quarterly survey yesterday from the Bank showed it was having more success in communicating its message to the general public.

The proportion of Britons expecting a rate rise in the next 12 months sank to 29 per cent in August from 34 per cent in May, its lowest level since the height of the financial crisis.

Meanwhile, the public’s inflation expectations for the coming year fell markedly in the past quarter, from 3.6 per cent in both the May and February surveys to 3.2 per cent.

Howard Archer, chief UK economist at forecasting group IHS Global Insight, described the survey’s findings as a “double dose of good news” for Carney and his colleagues on the Bank’s monetary policy committee. He said: “This suggests that the Bank of England’s new forward guidance policy indicating that interest rates are unlikely to rise before mid-2016 is being believed more by consumers than it is by the markets.”

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