Bank of England staff paper finds reduced inflation uncertainty boosts UK household spending and shifts savings toward fixed-return assets

The Bank of England has published Staff Working Paper No. 1,133, presenting research on the causal effects of inflation uncertainty on British households’ consumption and saving decisions. Using an information experiment to separate expected inflation from uncertainty about inflation, the paper finds that lower inflation uncertainty increases planned spending and expected income, while reducing uncertainty about expected income and interest rates, with higher spending mainly driven by less precautionary saving. The authors implement a randomised controlled trial in the March 2024 wave of the Bank of England’s Survey of Household Finances (around 6,000 households), randomly providing information about professional forecasters’ 12‑month inflation outlook, either the average forecast (2 percent), forecasters’ dispersion (a 2.1 percentage point gap between the highest and lowest forecast), both, or neither. The treatments reduce both expected inflation and inflation uncertainty, and the results are consistent with households interpreting inflation as supply‑side driven. In follow-up surveys 6 and 12 months after the intervention, households report lower monthly savings after a reduction in inflation uncertainty, but higher holdings of liquid fixed‑return assets, with the planned spending response most pronounced among non-hand-to-mouth and university-educated respondents. The Bank of England notes that staff working papers are research in progress published to elicit comments and debate, and do not represent Bank of England policy.