LONDON (Reuters) -The British public's expectations for inflation over the medium-to-long term, which are closely watched by the Bank of England, rose to a five-month high in October, according to a survey published late on Monday.
Inflation expectations in five to 10 years' time picked up to 3.5% in October from 3.3% in September, the survey by U.S. bank Citi and polling firm YouGov showed.
While British consumer price inflation dropped sharply in October to a two-year low of 4.6%, Citi said the rise in public inflation expectations probably reflected higher petrol prices and showed the BoE could not be complacent about price risks.
Public expectations for inflation in 12 months' time were stable at 4.2%.
"With compressed corporate margins risking a more persistent period of elevated price growth, both fiscal and monetary policy should remain cautious," Citi economist Benjamin Nabarro wrote in a note to clients.
Citi trimmed its growth forecast for Britain following tax cuts announced by finance minister Jeremy Hunt last month, partly because it expected the fiscal stimulus would delay the point at which the BoE began to cut interest rates.
"We expect the changes to leave cumulative growth through 2024/5 worse off overall," Nabarro said.