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Inflation fears voiced after rate rise

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15/08/2006

Almost three-quarters of consumers expect prices to rise further over the next 12 months, according to Lloyds TSB Corporate Markets’ latest Consumer Barometer.

The number of consumers expecting general prices to climb over the next year went from 69% in June to 74% in July this year. This is the first time in 5 months that inflation fears have increased. The barometer also showed that in July consumers were expecting interest rates to rise.

The survey was before August’s increase in interest rates, but showed that the number of consumers that believed interest rates would be higher rather than lower this time next year increased from 65% to 66% between June and July. This is the highest level since the survey started in November 2004.

However, the number of respondents feeling more rather than less secure in their jobs, compared to the same time last year, rose from -3% in June to -2% in July – a six-month high.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: “Keeping a lid on inflation expectations is crucial for the Bank of England as it strives to achieve its 2% inflation target. This survey shows that inflation expectations remain elevated and perhaps the Bank of England has more to do to keep them down. Its own analysis shows that keeping inflation expectations low helps keep down wage demands and so general price inflation pressures.”

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