Although the rate of inflation in Britain fell more than expected in April, it is still higher than the pace of price increases in the US and the majority of Europe. Due to this, the Bank of England is under pressure to continue raising interest rates.
Britain was worst hit compared to other countries as the surging food cost, shortage of workforce to fill jobs, and heavy dependence on natural gas to fulfill its domestic heating all contributed to adding pressure to inflation.
INFLATION IN THE UK VS. THE REST OF THE WORLD
Britain’s consumer price index grew 8.7% year on year in April, compared to 10.1% in March and 11.1% last October. Nonetheless, it was still high compared to the Group of Seven advanced economies besides Italy.
By contrast, United States inflation stood roughly under 5% and 7.6% in Germany. Among the rest of Western Europe, Austria recorded the highest rate.
Investors were surprised when the underlying inflation rate in Britain rose dramatically in April, from 6.2% to 6.8%, excluding volatile items like energy and food.
It is speculated that higher core inflation signifies a greater likelihood of a perpetually high price rise.
Services price inflation, an indicator of underlying price pressure frequently tracked by the BoE, surged as well. The two rises were the most significant in more than thirty years.
RAISING FOOD INFLATION IN THE UK
Britain has had the worst food inflation rate since 1977, compared to the rest of the European countries, with prices surging by 19% over the past year.
From April of last year to April of this year, the average price of milk and eggs increased by more than a third. Olive oil and sugar are more or less at 50% inflation rates.
Crops throughout the globe have been impacted by freak weather, driving up costs across multiple nations. The Food and Agriculture Organization of the United Nations indicates that Britain is the third-largest net importer of food and beverages in the world, following only China and Japan, making it very susceptible.
In the words of BoE Governor Andrew Bailey, British food producers may also have committed to higher prices than the BoE was expecting.
SURING ENERGY PRICES
Britain relies on other countries to fulfill its energy requirements; thus, it paid a heavy price for completing its energy quota last year as Russia invaded Ukraine.
International hikes in prices are slower to drive up inflation than in many other countries, but declines are also slower to filter through to consumer bills as a result of the way Britain controls energy costs for home and business users: it announces revisions to maximum rates every quarter.
WAS BREXIT PROBLEMATIC?
Britain decided to leave the EU in a 2016 referendum, and the single market of the EU was abandoned at the beginning of 2021. Although London and Brussels have a deal allowing for mostly tariff-free commerce in goods, there remain paperwork-based impediments to exports and imports that have led to higher prices and delays.
The restriction on the free movement of laborers from EU nations has led to a labor shortage that many companies are currently experiencing, which is more prevalent in Britain compared to other economies and has driven up wage rates and, eventually, consumer prices.
PEOPLE’s OPINION REGARDING INFLATION
The sole encouraging sign for the BoE as it explores the prospect of an inflation perspective becoming ingrained in consumer behavior is that expectations for rising costs among the British population have eased slightly in recent months.
However, they continue to be high.
The BoE will be concerned that expectations might yet become de-anchored as a result of the slower-than-expected decline in inflation, which would suggest that the general public and businesses would no longer trust that inflation will return to the BoE’s 2% objective.
ACTION’s EXPECTED TO BE TAKEN BY THE BANK OF ENGLAND
Following the publication of the data on Wednesday, investors and analysts instantly priced in a higher interest rate rise than they had first anticipated.
Investors anticipated that the BoE would increase rates from their current level of 4.5% to a minimum of 4.75% in June, according to rate futures, and that rates would exceed 5.5% by November, according to almost 60% of investors.
According to Bank of America, Citi, and Credit Suisse, the BoE will hike its key interest rate by two more percentage points to 5% by September, whilst Bank of America and the Japanese bank Nomura forecast three more rises to that level.
- Published By Team Timeswire