BOE Opens The Door for 2021 Rate Hike as Inflation Seen Above 4%
Comment of the Day

September 23 2021

Commentary by Eoin Treacy

BOE Opens The Door for 2021 Rate Hike as Inflation Seen Above 4%

This article from Bloomberg may be of interest to subscribers. Here is a section:

The U.K. central bank is trying to tame inflation that accelerated well beyond its forecasts over the summer, reaching 3.2% last month. Its new focus is enabled by stronger-than-expected jobs data that show unemployment will peak well below worst-case scenarios predicted at the onset of the pandemic.

While the BOE targets inflation of 2%, the rate may temporarily exceed double that level in the final three months of the year, slightly more than predicted in August, officials said. Spiking gas costs that have caused turmoil in U.K. energy markets “could represent a significant upside risk,” and also mean that consumer-price increases remain above 4% until the second quarter of 2022, the MPC added. 

“The looming end of furlough is a major source of uncertainty facing the economy, but for now the bank appears relatively confident that the economy can deal with this shock without a large increase in unemployment,” according to Luke Bartholomew, economist at Aberdeen Standard Investments.

Eoin Treacy's view

There has been a confluence of negative surprises that are affecting the UK economy at present. Some are related to pandemic supply chain issues, others are due to a lack of qualified drivers and others because the wind stopped blowing. (I can’t be the only one marvelling at how ridiculous that latter point sounds).

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