16 August 2023
If you are covering the latest UK inflation data from the Office for National Statistics, please find below a comment from David Henry, investment manager at Quilter Cheviot:
“With inflation falling to 6.8% and yesterday’s data showing wages increased by nearly 8% over the past year, the cost of living crisis may finally be beginning to wane. Households are still under immense pressures however, and inflation isn’t going to fall dramatically, but it will be pleasing to millions to see their take home pay now seeming to keep up with inflation. However, the headline numbers only tell a fraction of the story. Food prices continue to hit consumers, while core inflation is refusing to budge substantially. With the surprise in earnings growth added in and the economy holding up in the face of adversity, the Bank of England will probably determine that more interest rate rises are required to get the job done.”
“However, the BoE is reaching a tricky point now. Interest rates have been rising for more than 18 months and this is when they traditionally begin to bite on the economy. As a result, given the speed in which rates have reached more than 5%, the toll on the economy in the next few months could be quite severe and may be enough to tip the country into a recession. With the Federal Reserve now increasingly looking like they may now pause interest rates rises, this could naturally feed into the BoE’s thinking given how they have seemingly followed in the Fed’s footsteps in the past. But with inflation remaining especially elevated, and this being the primary reason for rate rises to date, the BoE is left in somewhat of a no-win situation.”
