UK public inflation expectations ease further in May from March's Iran shock, survey shows

LONDON, June 1 (Reuters) - The British public's expectations for future inflation softened in May after hitting the highest since 2023 in March, offering the Bank of England some comfort that the price shock from the Iran war may have less of a lasting impact than first thought.

Households' expectations for inflation in one year's time fell to 4.7% in May from 5.0% in April and a peak of 5.4% in March, according to a monthly survey for U.S. bank Citi by polling company YouGov.

Longer-term inflation expectations - which the BoE views as a guide to how hard it will be to navigate inflation back to its 2% target - fell to 4.0%, down from a peak of 4.5%.

"For now, we continue to think this jump will unwind reasonably quickly without long-lasting effect, especially in the event of a U.S.-Iran deal," Citi economists May Rostom and Callum McLaren-Stewart said.

Both the short- and long-term measures remain above their February readings of 3.3% and 3.6% respectively, before the closure of the Strait of Hormuz sent oil prices up by around 50%.

British consumer price inflation fell to 2.8% in April when various one-off price rises a year earlier dropped out of the annual comparison and government measures to shift environmental levies away from bills and into general taxation took effect.

However, the BoE expects inflation to approach 4% by the end of the year, and that assumes energy prices gradually fall over the course of the year.

In an adverse scenario, where energy prices climb further and there are widespread price rises for other goods and services, it had inflation exceeding 6%, though that is still well below the peak of more than 11% reached in October 2022.

YouGov's polling of 2,030 adults took place on May 20 and May 21, Citi said.

(Reporting by David Milliken; Editing by Muvija M and Susan Fenton)