Inflation expectations hit a record high in the second quarter of the year, which could rattle Bank of England policymakers and build the case for an interest rate hike. 

The Bank’s joint survey with Ipsos found that, on average, households believe inflation will rise by 3.9 per cent over the next five years. 

It was the highest reading for inflation expectations recorded since data collection began in early 2009. 

Inflation expectations for the year ahead also rose to four per cent, up from 3.2 per cent in the first quarter of the year. 

Britons also believe prices have jumped by around five per cent over the last year, up from a previous figure of 4.6 per cent. 

CPI inflation in the year to April was 2.8 per cent and next week’s reading for the 12 months to May is expected to show inflation edging towards three per cent. 

Economists said the survey results showed worse figures than research published by Yougov. 

Pantheon Macroeconomics analyst Rob Wood said there were also concerns over households’ dissatisfaction with the Bank of England over a failure to keep price growth stable. 

“The inflation expectations survey suggests that the Monetary Policy Committee was far from defeating persistent inflation before the war began, so policy will need to stay somewhat restrictive even without the latest energy price shock,” Wood said. 

Interest rate hike possible

The Iran war has dragged on as the US and Israel exchanged strikes with the country earlier this week, putting peace negotiations on ice and causing further disruption to trade across the Strait of Hormuz. 

President Trump has most recently claimed that a peace deal could now be back on the table as negotiators would convene but an Iranian leadership spokesman said there was no “final conclusion”. 

Prolonged disruption in trade could pose severe consequences for the UK economy, with one Bank of England scenario suggesting that inflation could race past six per cent and interest rates could be hiked to 5.25 per cent. 

The European Central Bank hiked interest rates earlier this week to fend off the threat of a spike in inflation threats, taking the area’s deposit rate to 2.25 per cent. 

The Bank is not expected to hike interest rates next Thursday although some economists have said the prospect of monetary tightening over the summer is still in play. 

Suren Thiru, ICAEW’s chief economist, said: “Continued concerns over inflation could mean a further hawkish shift within the committee with another rate-setter joining Huw Pill in backing a rate rise, keeping the door open to a summer interest rate hike.”