Economists at the major US bank Citi predict a price explosion for British consumers. At the beginning of next year, inflation will rise to 18 percent, Citi economist Benjamin Nabarro wrote in a note to customers of the bank on Monday. That would be the strongest inflation since 1976. It would then be nine times higher than the Bank of England aims: the British central bank actually wants to keep inflation at two percent.
At the start of the decade, the UK economy collapsed more than in more than 300 years in the wake of the coronavirus pandemic. As the National Bureau of Statistics ONS announced on Monday, economic output shrank by 11 percent in 2020.
UK economy slumped in 2020 like it hasn’t been since 1709
Gross domestic product (GDP) data is reviewed by the ONS on a case-by-case basis: it already reported the largest GDP decline in more than 300 years in an initial estimate for 2020, but then cited a 9.3 decline percent in an upward revision. After all, this would have been the biggest drop in GDP since World War II. The UK economy recovered last year, reaching pre-Corona levels in November 2021. However, in the wake of escalating inflation, the Bank of England (BoE) now expects the country to slip into recession this year.
“The question now is what policy can do to offset the impact on both inflation and the real economy,” economist Nabarro wrote. Liz Truss, the favorite to succeed outgoing Prime Minister Boris Johnson, is likely to propose budget support measures. According to the expert, these would probably only compensate for inflation to a very limited extent.
Interest at 1.75 percent
Citi assumes that the BoE will have to take tougher countermeasures. “This means that interest rates need to be moved quickly into the restrictive zone,” Nabarro wrote. “Should there be any signs of more entrenched inflation, we think a key rate of 6-7 percent is needed to bring inflation dynamics under control.” The key interest rate is currently at 1.75 percent. Higher interest rates are intended to prevent inflation in the economy from continuing and wages and prices from continuing to rise.
Goods cost on average 10.1 percent more in July than in the previous year
Price pressures in the UK are now at their highest level in four decades, with goods and services averaging 10.1 percent more expensive in July than a year earlier. The strongest price driver is energy. But the British also have to dig deeper when it comes to groceries for daily necessities: retail prices have risen by 12.3 percent, the strongest since 1981. Here, Citi even predicts maximum values of more than 20 percent.
This entails unusual measures: the British supermarket chain Iceland Foods, for example, offers its customers interest-free small loans for the purchase of groceries, given the extremely high inflation. The program is aimed at poor households struggling with the rising cost of living. Iceland Foods, with more than 900 stores, partners with non-profit lender Fair For You.
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
