Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

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.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
×