Responding to the Inflation Surge
Robert Alster, CIO of wealth manager Close Brothers Asset Management, said: “UK-wide supply issues pushed up prices and triggered a headline-grabbing CPI surge; the Bank of England will be monitoring key indicators closely in the coming months.
“Wage growth will be critical which, according to the October unemployment reading, will determine how consumer behavior resists rising prices. The October reading is vital, as it will be the first accurate reading from a post-leave Britain. The Bank will also need to verify whether the tension in the supply chain is transient. More worrying, however, is whether long-term inflation expectations remain anchored; if expectations move away from the 2% target, policy measures will lose their effectiveness and the bank risks losing credibility. “
Jack Leslie, Senior Economist at the Resolution Foundation, said: “The global economic recovery has caused a rapid increase in the inflation that families are feeling at the gas station, in their energy bills and in their wages. With an inflation forecast at 5 percent by next spring, we could be set for an extended period of wage cuts.
“While painful for households, the fact is that the global nature of these inflationary pressures means that traditional tools such as raising interest rates are likely to have little effect. Instead, we need to focus on securing Covid’s still incomplete recovery so that stronger growth creates more opportunities for higher salary increases. “
Richard Carter, head of fixed interest rate research at Quilter Cheviot: “At 4.2%, this is the highest 12-month inflation since November 2011, up from 3.1% in September . The 12-month inflation rates for electricity and gas are 18.8% and 28.1% respectively, the highest annual rates since 2009. Gasoline prices being the highest since September 2012, fuel price increases were also a major contributor to the high CPI figures. . All of these products recorded price drops at the start of the pandemic in March and April 2020.
“This morning’s print suggests we should prepare for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. Especially since we now have more information on the state of the UK labor market, which appears to be doing well from the end of the leave scheme. Yesterday’s employment figures showed a 0.5% reduction in the unemployment rate between the second and third quarters of the year, despite the termination of the holiday scheme.
“Some may say that the increased inflation is proof that the Bank of England should have already acted and started the process of tightening monetary policy. energy is a perfect storm of factors all spilling over at the same time. It is not clear how a modest 0.15bp rate hike would impact price increases in the energy market. electricity and gas Normal monetary levers may not be effective.
Thomas Pugh, economist at RSM UK, said: “Inflation will likely stay around 4% until April, when it will jump again to around 5%. But inflation will drop just as quickly over the remainder of 2022, as base effects are not taken into account in the annual comparison. This is one of the reasons we believe interest rates will be closer to 0.5% by the end of next year than the 1% that financial markets have taken into account. “