Confidence in bank is lowest in seven years

Dec 14 2007 by Iain Laing, The Journal

PUBLIC confidence in the Bank of England reached a seven-year low in November, a new survey shows.

The Bank’s latest inflation attitudes survey – taken before last week’s interest rate cut – showed public satisfaction with its rate-setting policies to control inflation at its lowest level since May 2000.

Respondents also believe that inflation is running at 3.2% – well above the official Consumer Prices Index benchmark, which currently stands at 2.1%.

Managing inflation perceptions is crucial to the Bank because expectations of higher prices will feed into wage demands, leading in turn to further inflationary pressures.

But the 2,000 people surveyed last month also expect inflation to reach 3% next year – a record for the study and well above the Bank’s 2% target for CPI.

The public perception of inflation in 2008 is sharper than the Bank’s own predictions, which see the rise in the cost of living remaining slightly above target next year, before slowing economic growth and rate cuts anticipated by the markets bring prices back in check.

After last week’s cut to 5.5% the MPC is expected to act again to lower rates by February, although Mr Archer added that the move was “not a gimme” if the bank was still worried over inflation.

But a record 39% of the public – responding before the MPC’s move to ease the pressure on homeowners last Thursday – called for the Bank to cut borrowing costs, compared with 33% in August, the survey also showed.

More than half – 52% – of respondents still expected rates to rise during the next year, although this was a fall from the 69% braced for an increase four months ago.