UK inflation could exceed 5% by early 2022, says Bank’s new chief economist

UK inflation could exceed 5% by early 2022, says Bank’s new chief economist

Inflation in the UK could exceed 5% by the start of next year, according to the new chief economist at the Bank of England.

Huw Pill, who replaced Andy Haldane in September, said the Bank of England’s monetary policy committee was “finely balanced” on whether to raise interest rates at its next meeting on November 4 and that it would be a “live” decision.

At the start of the week, consumer price inflation edged down to 3.1% despite pressure on households from soaring oil prices and businesses hit by shortages of truckers and materials.

However, the Bank of England previously said it expected inflation to exceed 4% by the end of the year.

Inflation has risen this year as businesses recover from the coronavirus pandemic, energy prices soar, gasoline costs peak in eight years, and global supply chain disruptions continuing to have a knock-on effect on costs.

“I wouldn’t be shocked, let’s put it that way, if we see an impression of inflation near or above 5%. [in the months ahead] Pill told the Financial Times. “And it’s a very uncomfortable place for a central bank with a 2% inflation target. “

Questions and answers

What is inflation and why is it important?


Inflation is when prices go up. Deflation is the opposite – prices go down over time – but inflation is much more common.
If inflation is 10%, a £ 50 pair of shoes will cost £ 55 a year and £ 60.50 a year after.

Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real interest rate on your fund is actually 0%.

A relatively new phenomenon, inflation has become a real concern for governments since the 1960s.

Typically, times of high inflation are good for borrowers and bad for investors.

Mortgages are a good example of how good borrowing can be – 10% annual inflation over seven years halves the real value of a mortgage.

In contrast, retirees, who depend on a fixed income, see the value of their assets erode.

The government’s preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the Consumer Price Index (CPI).

The Retail Price Index (RPI) is often used in salary negotiations.

Thank you for your opinion.

Pill’s view is that there will be big price increases over the next few months and heading into next year, with inflation likely to drop in the second half of 2022.

Financial markets are betting on a Bank of England interest rate hike next month, the first since the start of the pandemic, after Governor Andrew Bailey said earlier this week that “we will have to act To curb inflation.

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Pill said, “Maybe there’s a little too much excitement in the focus on rates right now. The big picture is, I think, that there are reasons why we don’t need the emergency parameters of politics that we saw after the pandemic intensified. The settings [of monetary policy] that we have now are support settings. The need for support has diminished as this [policy] bridge was built and widely crossed.

Pill was careful not to suggest that rates need to go much higher than the pre-pandemic level of 0.75%.

“We do not see, given the transient nature of what we see in terms of inflation in our baseline scenario, the need to move to a [policy] position, ”he said.


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