By Sílvia Domit and Chris Jackson of the Bank’s Monetary Assessment and Strategy Division and Matt Roberts-Sklar of the Bank’s Macro Financial Analysis Division.
People’s expectations about future inflation play an important role in determining the current rate of inflation and so in the Monetary Policy Committee (MPC) meeting its remit. Measures of inflation expectations at both short and longer horizons have generally fallen over the past year. Despite that, most indicators are broadly consistent with expectations remaining anchored to the MPC’s inflation target. Lower inflation expectations could lead to weak inflation becoming more persistent, although there are few signs that weaker inflation expectations have weighed significantly on inflation over the recent past.