22 June 2022
If you are covering the latest UK inflation statistics, please find below a comment from Paul Craig, portfolio manager at Quilter Investors:
“With the UK currently preoccupied by rail strikes, today’s 9.1% inflation rate is a reminder of the challenges facing the BoE, government, businesses and consumers. While the rate of growth in the inflation rate may have slowed, we have plenty warnings that this is not the peak, with the Bank of England expecting it to climb to 11% later this year following the increase in fuel caps. Disappointingly, the cost-of-living crisis is not going to be a short-lived affair, and this ultimately leaves the Bank of England stuck between a rock and a hard place.
“While the US has acknowledged the need to go hard and fast on interest rates, the Bank of England continues to plod along at a slower pace, trying not to tip the economy into recession at a time when businesses and consumers are feeling the pinch. However, their current strategy is doing little to stop inflation running away from it and thus harder decisions are coming very soon with the Bank already hinting at a larger rise at its next meeting.
“Whether or not the Bank can avoid a hard landing remains a moot point while oil prices remain elevated, utility bills show no sign of falling and price rises continue to get passed on to the end consumer. Furthermore, the geopolitical situation shows no sign of abating either, which touches inflationary pressures the Bank cannot reach. While the government has pulled some fiscal levers to date, this period of protracted inflation may mean more will have to used later in the year, although while Boris may re-enact the scene from Oliver Twist, Rishi might have to say the bowl is close to empty. The government and Bank of England will be watching the labour market closely, therefore, and not just for signs of more strikes over inflationary lagging pay rises. With inflation where it is at, any sign of employment weakness creeping in will be a big warning sign for the economy.”
