British Households Show Resilience in Face of Oil Price Volatility

British households have unexpectedly shown resilience in the face of oil price volatility and the ongoing US-Iran conflict. Despite the chaos, their inflation expectations have eased, with a recent Citi/YouGov survey showing a lower short-term expectation of 3.3% for February, prior to the first US military strikes on Iran.

The longer-term view, which looks five to ten years out, has also seen a decline in inflation expectations. This is significant because it captures whether people think inflation is a lasting problem or a temporary issue, and it's an important input for the Bank of England's assessment of inflation psychology.

According to Callum McLaren-Stewart, a UK economist at Citi, 'We remain dovish on the implications of inflation expectations.' He noted that current expectations are only marginally above the 3.3% reading recorded in February, which had previously led markets to bet on the Bank of England cutting rates.

The survey's importance lies in how it captures public sentiment and whether consumers believe price rises are temporary or lasting. If they think inflation is a short-term issue, they're less likely to demand large wage increases, which helps keep inflation from becoming entrenched.