Provide chain disruptions and employee shortages are hampering Britain’s financial restoration. GDP progress slowed sharply in July, posting its smallest month-to-month enhance since February, the ONS stated final week.
A ‘whiff’ of stagflation
The economic system stays 2.1% smaller than earlier than the pandemic and economists at Berenberg now anticipate it to make a full restoration within the second quarter of 2022 as a substitute of the primary.
If costs proceed rising, there’s a danger that stagflation happens, based on Berenberg senior economist Kallum Pickering, a phenomenon characterised by stubbornly excessive inflation and weak financial progress.
“The current batch of UK information exhibiting file labor demand and surging wages, rising inflation however weaker-than-expected actual GDP progress has a whiff of stagflation to it,” Pickering stated in a analysis observe on Wednesday. “Whereas the danger of such an end result stays low, in our view, it places the [Bank of England] in a tough place nonetheless,” he added.
The unexpectedly sharp enhance in inflation may power the Financial institution of England to hike rates of interest earlier than anticipated, Pickering stated.
The spike in UK inflation follows information out Tuesday exhibiting that the speed of inflation in the US slowed barely in August as some value distortions eased, reminiscent of for used automobiles. However costs stay elevated throughout the economic system amid persistent provide chain bottlenecks.
“There are too many causes to anticipate provide shocks in different areas to be assured inflation is not going to settle at [a] barely uncomfortable stage for a sustained interval,” Societe Generale strategist Package Juckes stated in a observe on Wednesday.