THE speed with which things continue to get worse on the inflation front is, unfortunately, somewhat dizzying.
That said, it still does not seem to be attracting anything like sufficient attention from the Boris Johnson administration, which appears sadly out of touch with the scale of the problem and with everyday realities for ordinary people.
The Bank of England’s latest projections, published last week with its announcement that its Monetary Policy Committee had raised UK base rates by a further quarter-point to one per cent, made for grim reading.
The Old Lady of Threadneedle Street is now projecting annual UK inflation on the consumer prices index measure will top 10% later this year.
And the extent of the inflation troubles seemed to be writ large in the fact that the MPC vote was split not on whether to raise benchmark interest rates or not last week, but on the question of by how much.
READ MORE: Passport delays: Johnson in default mode of ideological deflection: Ian McConnell
Three MPC members, Jonathan Haskel, Catherine L Mann and Michael Saunders, voted unsuccessfully for a half-point rise in rates last week.
The other six members, including Bank Governor Andrew Bailey, opted for a quarter-point increase.
Of course, UK base rates remain extremely low by historical standards but that is cold comfort for people who have taken on large mortgages to buy a property as house prices have rocketed, especially amid a general cost-of-living crisis.
Minutes of last week’s meeting state: “Three members preferred a 0.5 percentage point increase in Bank Rate at this meeting. These members put more weight on continued strength in demand, yielding risks that capacity pressures, especially in the labour market, would be greater over the forecast period than in the May report projections.
“These members also judged that monetary policy should lean strongly against risks that recent trends in pay growth, firms’ pricing strategies and inflation expectations in the economy more widely would become more firmly embedded.
READ MORE: Jacob Rees-Mogg, in what world is this not in its entirety an ‘act of self-harm?’: Ian McConnell
“Faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce risks of a more extended and costly tightening cycle later.”
The minutes also flag the prospect of further rate rises.
They say: “Based on their updated assessment of the economic outlook, most members of the committee judged that some degree of further tightening in monetary policy might still be appropriate in the coming months.”
Annual CPI inflation was only 0.4% in February 2021. The annual CPI target set for the Bank of England by the Treasury is 2%.
In its monetary policy summary last week, the Bank said of its latest inflation forecasts: “In the May report central projection, CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4.
“The majority of that further increase reflects higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October…The expected rise in CPI inflation also reflects higher food, core goods and services prices.”
Energy regulator Ofgem in February announced a £693 per year or 54% hike in the energy price cap for a typical dual fuel customer, and this took effect on April 1.
READ MORE: Ian McConnell: Why did Tory Brexiters think this was a good idea?
ScottishPower chief executive Keith Anderson warned this week of potential for a further increase of more than £900 in the price cap in October.
Things have gone from bad to much worse, very quickly, on the inflation front.
The Bank of England’s inflation outlook in February had forecast annual CPI inflation would peak at around 7.25% in April. This forecast high was around two percentage points greater than the Bank’s projection last November.
Annual UK CPI inflation surged from 6.2% in February to a fresh 30-year high of 7% in March. On the old all-items retail prices index measure, annual inflation leapt from 8.2% to 9%.
The central bank said last week of the developing picture: “Underlying nominal earnings growth has risen by more than projected in the February report and is expected to strengthen in coming months, given the further tightening of the labour market and some upward pressure from higher price inflation.
“Companies generally expect to increase their selling prices strongly in the near term, following the sharp rises in their costs, with many reporting confidence that they will be able to rebuild at least some of their margins.”
Meanwhile, the Bank noted that “in the May report central projection, UK GDP (gross domestic product) growth is expected to slow sharply over the first half of the forecast period”.
It added: “That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins.”
Obviously, huge inflationary pressures and a sharp slowing of growth are a most unappealing combination, and the Bank of England highlighted the implications for the labour market.
The central bank pointed out last week that, although the unemployment rate was “likely to fall slightly further in the near term, it is expected to rise to 5.5% in three years’ time given the sharp slowdown in demand growth”.
This represents a steep and painful increase, with the unemployment rate on this International Labour Organisation measure currently at 3.8%.
The rates of increase of Scottish companies’ costs and prices charged were the sharpest since comparable records began in 1997, according to Royal Bank of Scotland’s latest purchasing managers’ index (PMI) report published on Monday.
With surging inflation, rising interest rates, slowing growth, and a projected lurch for the worse on the unemployment front, the road ahead is difficult.
Times are tough indeed for many, many UK households and businesses alike.
However, the demeanour of the Johnson Cabinet signals Tory ministers either do not realise the extent of the problem, or they do not care.
There is a rambunctious tone, with lots of populist overtures, but nothing of substance to help consumers and businesses struggling amid the inflation storm.
And, on the listing vessel that is Blighty, Mr Johnson looks a whole lot like Captain Oblivious.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel