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U.K. Inflation, Rate Hike Expectations Fall: BoE Survey

Britons' inflation expectations have eased from May and the proportion of respondents expecting an interest rate hike in the next 12 months was the lowest since 2008, results of a key survey from the Bank of England revealed on Friday.

Median expectations of the rate of inflation over the coming year were 3.2 percent, which was lower than the 3.6 percent predicted in May, the Bank of England/GfK NOP Inflation Attitudes August Survey showed.

Respondents saw the current inflation rate at 4 percent versus 4.5 percent in May. Inflation is expected to reach 3 percent in two years and 3.5 percent in five years time.

The survey was carried out among 2050 people aged 16 and over, between August 8 and 13, which was immediately after the Monetary Policy Committee's forward guidance announcement under the new governor Mark Carney.

The forward guidance explicitly states that the central bank will not raise interest rate from the current level of 0.5 percent until the unemployment rate falls to 7 percent. Further, the MPC said the bank can undertake more asset purchases when needed, if the jobless rate remains above 7 percent.

"When asked about the future path of interest rates, 29 percent of respondents expected rates to rise over the next 12 months, down from 34 percent in May," the central bank survey said.

The response in August was the lowest since November 2008, the height of the financial crisis, the bank noted. Moreover, there have only been three occasions when fewer respondents expected interest rates to rise (February and May 2001 and November 2008), since the start of the survey in 1999.

Meanwhile, five percent of respondents expected interest rates to fall over the next 12 months, the same as in May.

by RTT Staff Writer

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