Britain’s cost of living crisis peaks later this year, BoE pushes for rate hikes

ryanniesMay 18, 2022

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May 17, 2022 •• 23 minutes ago •• Read for 3 minutes •• Join the conversation

London — Britain’s worst living-cost crisis in 30 years will not peak until the end of this year, but the Bank of England will raise interest rates more aggressively than was thought to fight rising inflation.

The blockade of the new coronavirus in China and Russia’s invasion of Ukraine deepened supply chain problems that had just recovered from the turmoil caused by the pandemic and caused global prices to skyrocket.

Britons are faced with the additional headaches of rising energy prices, tax increases and the continued impact of withdrawal from the European Union.

“Inflation rates so far have been avoided because they were primarily focused on individual items, such as gasoline,” said Paul Dale’s of Capital Economics.

“But at this point, it’s very popular, focusing on things that are inevitable, such as electricity, gas, and food.”

Seven of the 13 respondents to the additional questions in the May 12-17 poll, when asked when the cost of living crisis peaked, said the fourth quarter. Three in the next quarter and three by the end of next month said.

The government is under increasing pressure to support household income, and nine out of twelve respondents to another question said they should do more now. All of the above support should be targeted at low-income households.

Prime Minister Boris Johnson said last week that his government would “do something” in the short term to help the British, but didn’t go into details.

Official data scheduled for the second half of Wednesday are expected to show that inflation reached its 40-year high of 9.1% last month. This is more than four times the BoE’s 2% target.

Poll participants barely gave up on inflation in the next quarter, averaging 8.3% from the current 8.7, up from 7.9% and 8.4% in the April survey.

Bank Governor Andrew Bailey said on Monday that the current surge in inflation is the central bank’s biggest challenge, as the central bank became independent in 1997 and rising food prices became a major concern.

Earlier this month, the World Bank said inflation could rise above 10% later this year. Fuel costs surged 54% in April and the BoE increased another 40% in October.

“In the coming months, the road to double-digit inflation is still strong, and service and food inflation is still rising. But to get there, take a few more beats, or a pipeline. More price pressure will be needed to build, “said Sanjay Raja of the German Bank.

However, the median, upgraded from last month in the latest Reuters poll, suggests that inflation will gradually decline from here, but will not reach its target until the end of next year.

In December, the Bank of England became the first major central bank to raise borrowing costs, with regular moves to raise bank rates from a record low of 0.10% to 1.00%.

Median polls showed a pause at 1.25% in June, after rising again to 1.50% in the next quarter, and before rising to 1.75% in the second quarter of 2023.

A poll in April showed that it would reach 1.25% by the next quarter and was not expected to reach 1.50% by early 2023.

Just over two-thirds of respondents had a forecast of 1.25% at the end of the second quarter, but were further divided on where bank interest rates would be by the end of December. Fifteen were less than 1.50%, 22 saw it at that level, 19 expected it to be higher, and the highest prediction was 2.25%.

The World Bank has warned that Britain may face a recession, and economists answering additional questions said there was a 35% chance of a recession within a year. This was slightly higher than the 30% shown in another Reuters poll on the euro area.

No respondents showed a recession for the second consecutive quarter in the forecast, which is the technical definition of a recession. However, this year’s quarterly forecast was downgraded, with recession probabilities ranging from 15% to 100%.

The economy will grow by an average of 3.7% in 2022 and expand by 1.3% next year, showing a median forecast of nearly 70 economists from 3.8% and 1.7% last month.

(For other stories from Reuters’ World Economic Survey :)

(Report by Jonathan Cable, polling by Indradip Ghosh and Aditi Verma, edited by Kirsten Donovan)