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LONDON, October 5 (Reuters) – Britain’s economic recovery from coronavirus lockdowns is hampered by supply chain problems, a surge in inflation and the risk of unemployment spiking, making it difficult for policymakers to manage the recovery.
Former Bank of England chief economist Andy Haldane says the UK is in a VILE era of volatile inflation and little expansion.
Financial markets now expect the BoE to be all but certain to hike rates through February, but some economists, concerned about signs of a fading recovery, aren’t as sure.
The following are some of the indicators of the UK economy that are likely to stay with policy makers.
INFLATION
Britain’s inflation rate reached 3.2% in August, its highest level in almost a decade. A few one-off factors were responsible for the record jump from July, but the BoE expects inflation to head above 4%, more than double its 2% target.
The BoE is on the lookout for signs that consumers are losing confidence that inflation will be contained in the longer term.
Public inflation expectations for the coming year rose sharply in September, according to a Citi / YouGov poll that may have weighed on BoE rates. You said last month that the case for a rate hike is growing.
SLEEPING GROWTH?
While the UK economy grew rapidly on reopening earlier this year after a third COVID-19 lockdown, the latest readings show that momentum has largely subsided. According to official data, economic growth slowed to a minimum in July, and surveys of businesses and consumers suggest that sluggish growth continued into the second half of the year – before the worst supply chain problems of the past few weeks had emerged.
SUPPLY CHAIN ​​PROBLEMS
According to the latest IHS Markit / CIPS business survey, there has been no rebound in the supply chain and staffing issues for UK manufacturers facing significant delays from suppliers.
That was before panic buying at petrol stations, caused by the lack of tanker drivers, led to the sharpest weekly decline in car traffic since early June at the end of September – another hopeless sign for the economy.
The labor shortage seen in other economies around the world has worsened since the UK decided to leave the European Union and end the free movement of workers from the bloc. But Prime Minister Boris Johnson on Tuesday denied the UK was in crisis, saying its “natural ability to manage its logistics and supply chains is very strong”. Continue reading
CONSUMER EXPENDITURE
The interruption in the supply chain and rising inflation severely affected GfK’s consumer confidence last month – historically a good indicator of household spending.
Households are also faced with cuts in government benefits and tax increases for employed people.
BoE data released last week indicated that consumers are back on saving rather than spending.
WORKS AND Wages
The UK’s unemployment rate has fallen in six of the last seven monthly reports, aided by the economic recovery and the government’s job-securing vacation program.
This program ended in late September and the BoE is watching to see if unemployment will rise again.
Wages have risen rapidly, despite the statistical biases caused by the pandemic to upgrade the official measure of income growth. Still, inflation has started to penetrate incomes: the official real indicator of headline wage growth has fallen for three consecutive months.
Reporting by Andy Bruce, Editing of Timothy Heritage
Our Standards: The Thomson Reuters Trust Principles.
