Arab Press

بالشعب و للشعب
Friday, Mar 29, 2024

Explainer: UK inflation nears 30-year high, but how fast will it fall back?

Explainer: UK inflation nears 30-year high, but how fast will it fall back?

British consumer price inflation looks set to hit a 30-year high of 6% or more in April, but the big question for the Bank of England and the wider public is how quickly it will then fall back.

The BoE last month became the world's first major central bank to raise interest rates since the coronavirus pandemic hammered the global economy.

Now investors are betting on as many as four more rate hikes in 2022, taking Bank Rate as high as 1.25%, because the rise in prices in Britain - as in many other rich economies - looks set to be less transitory than previously hoped.

The inflation peak will hit the spending power of consumers just as they face a tax hike in April, challenging Britain's economic recovery from its coronavirus crash of 2020.

Bethany Beckett, an economist with Capital Economics, said household disposable income will fall in real terms this year, contributing to a slowdown in economic growth to 3.7% in 2022. The BoE in November predicted 5.0% growth this year.

HOW LONG IS INFLATION LIKELY TO STAY HIGH?


The BoE's current forecasts, published in November, point to consumer price inflation of 3.5% in 2022 before a fall to 2.25% in 2023, close to the BoE's 2% target.

Then, after gas prices rose further, the central bank said in December it had raised its estimate for the peak in inflation to about 6% in April.

That means the BoE is likely to push up its full-year inflation forecasts again on Feb. 3, alongside what many investors think will be another rise in Bank Rate to 0.5%.

Households face a sharp increase of about 50% in their gas bills - or a bit less if the government moves to lessen the hit - in April, when a regulated price cap is due to be increased.

Paul Dales, chief UK economist at consultancy Capital Economics, has almost doubled his inflation forecast for 2022 as a whole to 4.0% from a previous estimate of 2.2%.

WHAT IS GOING ON WITH GAS PRICES?


After their surge, gas prices have fallen recently.

Britain is set to receive a record number of liquefied natural gas cargoes this month, helping to bring the day-ahead natural gas price down from a peak of more than 450 pence a therm in late December down to about 200 pence last week, although that was still much higher than its level of about 50 pence a year ago.

Philip Shaw, an economist with bank Investec, said inflation in 2022 could end up at 2.5% if the recent fall in gas prices continues and leads to a cut in tariffs at a twice-yearly review by regulators due in October.

WHAT ELSE IS DRIVING UK INFLATION?


As well as the usual variables, from petrol prices to the impact of weather of food costs, another key factor for inflation this year is what happens to global supply chains, which were hit hard by the pandemic.

This has been seen most starkly in the car market, where a shortage of microchips has curtailed production of new cars, pushing the price of second-hand models up by 27%.

However, a survey of purchasing managers at British manufacturers last month showed an easing of prices paid for inputs from near record highs.

But analysts are watching for the impact of the Omicron variant in China where a strict approach to stamping out coronavirus outbreaks led to the shutdown of suppliers vital for global manufacturers in 2020, pushing up prices.

IS A WAGE-INFLATION SPIRAL LIKELY?


The BoE's main concern is not so much about what inflation does in the coming months but whether it triggers longer-term inflationary pressures, principally in wage settlements.

Some companies have responded to a post-Brexit, post-COVID shortage of workers by pushing up pay for some roles.

Food retailer Gregg's (GRG.L) this month brought forward a pay rise for its staff.

A survey of manufacturers showed recent pay increases ranged between 2% and 3% but went as high as 14% in some cases, while 45% of firms had yet to agree a pay deal as they awaited more clarity on inflation and other factors.

Newsletter

Related Articles

Arab Press
0:00
0:00
Close
China Criticizes US for Vetoing UN Ceasefire Resolution in Gaza
Saudi Arabia ranks first in UN index for e-government services in MENA
Israel Records 20% Drop In GDP, War In Gaza Is The Reason
Saudi Arabia's FDI Inflows Grow with New International Standards
Venture Capitals Power Up Across MENA Region
PM Modi Announces Opening Of New CBSE Office In Dubai
January Funding for MENA Startups Totals $86.5 Million
Saudi Arabia accelerates digital economy growth through Nvidia partnership
Israel unveils tunnels underneath Gaza City headquarters of UN agency for Palestinian refugees
Israel deploys new military AI in Gaza war
Egypt threatens to suspend key peace treaty if Israel pushes into Gaza border town, officials say
Saudi Arabia Warns Of A "Humanitarian Catastrophe" If Israel Moves On Rafah
US University To Shut Qatar Campus Due To "Heightened Mideast Instability"
Facebook and Instagram Ban Iran's Supreme Leader
Defense Technology Showcase Held in Riyadh
Saudi Arabia’s non-oil exports rise 2.5% to $6bn in November 2023: GASTAT
Rolls-Royce Executive Encourages Saudi Women to Tap into Their Inner 'Superhero' for Success in Defense Industry
Saudi Arabia launches National Academy of Vehicles and Cars
Saudi Tourism Minister Reveals Plan for 250,000 New Hotel Rooms by 2030
SAR to more than double eastern network passenger capacity with new trains deal
Saudi Arabia Enhances National Defense with New Partnerships
Saudi Aramco Maintains Arab Light Crude Pricing to Asia for March
NEOM Establishes New York Office to Support Investors
Saudi Wealth Fund Draws in Over $25 Billion Worth of Investments in Three Years, Al-Rumayyan Reveals
The Saudi Kingdom's Ultimatum to Israel: A Win-Win Peace with Saudi Arabia and the Arab World, or a Lose-Lose Continued Occupation and Endless Conflict
Biden condemns anti-Arab hate after WSJ opinion piece calls Dearborn ‘jihad capital’
Turkey Releases Seven Hostages Captured by Pro-Gaza Gunman
Arab Parliament Commends Women's Contributions to Societal Development
British and Hungarian Foreign Ministers visited Lebanese leaders to stress the importance of enacting UN Resolution 1701
Yemen's Houthis Say They Targeted British Merchant Vessel In Red Sea
Donald Trump Nominated for Nobel Peace Prize for 'Historic' Middle East Policy
US lawmakers approve F-16 jet sale to Turkey following NATO expansion support
Saudi Arabia Climbs 25 Places in World Bank's National Statistics Indicator
Tourism Growth in Saudi Arabia Fuels Advancements in the Hospitality Industry," Says Rotana Official
Houthi Rebels Request Departure of UN Staff from Yemen, Including US and UK Personnel, within a Month
Modi Inaugurates Hindu Temple on Site of Demolished Mosque in India
Over 25,000 Deaths in Gaza Amid Israeli Offensive
Escalating Clashes in Gaza as Israel Distributes Leaflets to Assist in Locating Hostages
Turkey's First Astronaut Set to Launch for International Space Station Today
Head of Palestinian Investment Fund Warns More People May Die of Hunger Than War in Gaza
Palestinian Envoy Criticizes UK for Alleged 'Double Standards' in Policies Toward Israel
Morocco to Lead UN Human Rights Council in 2024
Is artificial intelligence the solution to cyber security threats?
Egypt has been identified as the leading military force among Arab nations and ranks 15th globally
The AI Revolution in the Workforce: CEOs at Davos Predict Major Job Cuts in 2024
Iranian Nobel Laureate Narges Mohammadi Receives Additional Prison Sentence
"Gazans Urge Israeli Forces to Target Hamas in Leaked Audio"
Biden States US and UK Airstrikes on Houthis Were a 'Defensive Action
Large Pro-Palestine Rally in London as Gaza Conflict Hits Day 100
South Africa Urges World Court to Halt Israeli Actions in Gaza
×