PA ANALYSIS: Fiscal stimulus is not a silver bullet

Added 9th September 2016

The latest Inflation Attitudes Survey shows a marked fall in perceptions of both current and expected inflation within the UK.

PA ANALYSIS: Fiscal stimulus is not a silver bullet

The survey, released by the Bank of England on Friday, tracks the views of a representative sample of the UK’s population.

Because it is a measure of the view of the ‘man on the street’ it tends to be higher than official readings of CPI but, as is evident from the graph below, which shows the median answer given versus CPI, it has been trending downward since January 2014. The latest median figure of 1.8%, down from 2.2% in the May edition is only the third time the median has been below 2% since the series began in November 1999. The previous times were in November 1999 and (1.4%) and November 2001 (1.7%).

 

Asked about expectations of inflation in the longer term, say in five years’ time, the BoE said respondents gave a median answer of 3.0%, compared to 3.4% in May.

While the predictive power of such surveys is limited, the marked move downwards in expectations and current, felt inflation does not bode well for predictions of robust consumer spending ahead.

In light of this, the current persistently high valuations within many areas of the stock market and the earnings growth required to justify them is brought once more into relief.

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Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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