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Home Banking Market Report: Bank of England still in a jam as inflation bubbles to a four decade high

Market Report: Bank of England still in a jam as inflation bubbles to a four decade high

by admin
Susannah Streeter

17 August 2022

Market Report: Bank of England still in a jam as inflation bubbles to a four decade high

  • The CPI measure of inflation hits 10.1%, the highest level since February 1982.
  • Painful rise in prices means the Bank of England is set to keep on its strict path of rate rises.
  • Signs that shoppers in the US are tightening belts, but Wall Street rises on retail resilience.
  • Brent crude inches back above $93 a barrel, but lid on price rises expected amid Iran deal hopes.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

‘’The relentless rise upwards in prices continues, with little sign of a break for consumers who are desperately trying to make ends meet. Inflation has now hit double digits, a painful financial milestone but the worst is yet to come.

 At 10.1% this is the highest peak for inflation since February 1982 when The Jam were at the top of the charts with A Town called Malice. Right now the Bank of England finds itself in a sticky situation, with little option but to  keep raising interest rates to try and lower demand in the economy. Policymakers are in a jam because they know full well that this monetary policy squeeze risks pushing the UK economy into recession, if it isn’t there already. This boiling temperature will mean policymakers won’t easily be able to turn down the heat on those rate rises given their stated determination to put a lid on inflation and bring it back to its 2% target.

The ONS data indicates that inflation rose more sharply in the UK than other G7 nations like France, Germany, Italy and the US. With more painful hikes in energy bills to come, and prices rising rapidly in supermarkets, many consumers are already having to make some hard choices about how to spend their dwindling budgets. The path is set for a scorching summer of price rises to merge into a pretty awful Autumn and a winter of woe as households struggle against this tide of inflation.

In the US for now, retail sales appear to be holding up, which has buoyed Wall Street, but shoppers even in wealthier households are searching out bargains, with discounting helping push Walmart earnings above expectations.  Investors have clung onto this as a sign of consumer resilience and an indicator that the US may avoid recession, but it could also be read as a sign that shoppers are battening down the hatches and preserving their dollars and cents for tougher times ahead.

With energy making up such a big chunk of inflationary pressure, the drop off in the price of oil since the start of the month will come as some relief. The price of a barrel of Brent Crude has inched up marginally since the fall to below $93 yesterday, after a US inventory report showed a larger than expected decline of crude stockpiles. Hopes remain that there could be a deal reached with Iran to revive the nuclear accord and lift sanctions which could push another 2.5 million barrels per day onto the market and that’s helping keep prices lower. That deal isn’t likely to be imminent but concerns about a dramatic slowing in the global economy are likely to keep a lid on crude prices.’’

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