UK inflation rises at a record pace in August

by

The annual inflation rate rose 3.2% in August, from 2% in the twelve months to July, Britain’s National Statistics Office (ONS) said on Wednesday. The month-on-month increase is the largest recorded since the ONS began maintaining records in January 1997.
Some of the uprising reflected the coronavirus relief programs that were established last summer, such as the reduction of the sales tax in the hospitality sector and the government’s “Eat Out to Help” initiative. ”, Which discounted restaurant meals.
But the UK economy has also faced sustained upward pressure on prices driven by labor shortages and heavy supply chains linked to the pandemic and Brexit. This is weighing on the economic recovery and could force the Bank of England to advance interest rate hikes if inflation stays above its 2% target for longer than expected.
According to the ONS, there was a record 1 million vacancies in the UK between June and August and wages rose by almost 7% between May and July. Wage increases are occurring, as companies are already facing higher costs in their supply chains due to shortages of raw materials and rising shipping rates.
Restaurants, pubs and supermarkets, including Iceland Foods and Nando’s, have had to close some locations due to staff shortages or running out of ingredients. McDonald’s (MCD) he was forced to remove smoothies from his menu earlier this summer.

Supply chain disruptions and labor shortages are hampering Britain’s economic recovery. GDP growth slowed sharply in July, and recorded its smallest monthly increase since February, the ONS said last week.

A “blow” of stagflation

The economy is still 2.1% smaller than before the pandemic and Berenberg economists expect it to fully recover the second quarter of 2022 instead of the first.

If prices continue to rise, there is a risk that stagflation will occur, according to Berenberg senior economist Kallum Pickering, a phenomenon characterized by stubbornly high inflation and weak economic growth.

“The recent batch of UK data showing record labor demand and rising wages, rising inflation but weaker-than-expected real GDP growth has a sense of stagflation,” he said Pickering in a research note Wednesday. “While the risk of this outcome remains low, in our view, it puts value [Bank of England] however, in a complicated position, “he added.

US inflation eased in August. But America has not yet come out of the forest

The unexpected rise in inflation could force the Bank of England to raise interest rates earlier than expected, Pickering said.

The rise in UK inflation follows Tuesday’s data showing that the inflation rate in the US slowed slightly in August as some price distortions were reduced, such as used cars. But prices remain high across the economy amid persistent bottlenecks in the supply chain.

“There is too much reason to expect supply shocks in other areas to be sure inflation will not be resolved [a] a slightly uncomfortable level for a sustained period, “Société Générale strategist Kit Juckes said on Wednesday.

.Source