By Alina Barnett and Ozlem Oomen of the Bank's Monetary Assessment and Strategy Division and Venetia Bell of the Bank's Inflation Report and Bulletin Division.
According to the Bank/GfK NOP survey, near-term inflation expectations have fallen markedly over the past year from elevated levels. In part, that may have reflected a reduction in households' perceptions of current inflation. But it is also likely to have reflected weaker demand prospects. Longer-term measures of inflation expectations were a little higher in May than in February. Households' perceptions of the current level of interest rates have fallen, as both borrowing and saving rates have declined. Households report that they expect interest rates to rise over the year ahead. The net balance of respondents satisfied with the performance of the Bank has fallen over the past year. That may reflect concerns about the economic outlook and the financial crisis.