British inflation expectations for the coming year rose to 2.4 per cent in May from 2.1 per cent in February, a Bank of England survey showed on Thursday, the first rise since August.
The BoE/GfK NOP Inflation Attitudes Survey also showed Britons think the current rate of inflation fell to 4 per cent last month from a perceived 4.2 per cent in February - still double the central bank's official target.
The latest actual consumer price inflation rate, however, stood at 2.3 per cent in April and retail price inflation, on which many wage deals are based, is in negative territory.
Sterling rose after the rise in headline inflation expectations, which took some analysts by surprise.
“At the margin, people are going to think that maybe it's less likely that we are going to see deflation,” said George Buckley, an economist at Deutsche Bank.
“The degree of stimulus we have seen has been huge ... that has led to a rise in economic activity and people think that perhaps the recovery is happening and what goes hand in hand with recovery is a rise in inflation.”
Policymakers expect inflation to fall sharply over the coming months as the effects of recession feed through.
The BoE has cut interest rates to a record low of 0.5 per cent and embarked on an unprecedented £125 billion asset buying spree to kickstart the economy, which shrank 1.9 per cent in the first quarter of the year - the biggest drop since 1979.
There have been some signs, however, that the recession is running out of steam although there is uncertainty over how sustained and strong a recovery might be because banks remain reluctant to lend.
The highly-regarded independent think tank, the National Institute of Economic and Social Research said the economy was growing in April and May.
The survey showed the public was more satisfied with the way the BoE is doing its job than in February. The net satisfaction index rose to 17 per cent in May from 10 per cent.
Reuters