Public expectations for inflation have dropped to their lowest level in three years, according to a Bank of England (BoE) survey released on Friday.

The quarterly inflation attitudes report showed that the outlook for inflation in the next 12 months fell slightly from 2.8% in May to 2.7% in August, the lowest since August 2021.

While inflation expectations for the upcoming year dipped, the five-year forecast inched up to 3.2% from May's 3.1%. Meanwhile, projections for inflation over the next two years remained steady at 2.6%.

The BoE’s Monetary Policy Committee (MPC), which closely monitors this data, is set to meet next Thursday to discuss the future of interest rates.

Although rates currently stand at 5%, many analysts predict that they will remain unchanged before a potential 25-basis point cut later this year.

The recent dip in expectations follows a summer in which inflation briefly exceeded the BoE’s 2% target, climbing to 2.2% in July. While this figure surpassed the central bank’s target, it was still a smaller increase than many experts had predicted.

The BoE anticipates inflation could reach 2.75% before starting a gradual decline next year, eventually falling below 2%.

The survey, conducted in early August and involving over 2,000 people aged 16 to 75, revealed changing attitudes toward interest rates. Only 29% of respondents expected rates to rise over the next year, down from 34% in the previous survey, while 22% believed rates would remain unchanged.

In a more optimistic sign, public confidence in the BoE’s handling of inflation improved.

The net satisfaction balance, which gauges the public's view of how well the central bank is managing interest rates to control inflation, rose from -4 in May to +4 in August, reflecting growing trust in the BoE’s efforts to stabilize the economy.