Britain stuck squarely in stagflation - CPI reaction
He said: “This morning’s inflation numbers make for very grim reading. Consumer prices are now growing at their fastest rate since January last year, and at almost double the pace targeted by the Bank of England. While rising household energy bills are partly at play, we also lay the blame on labour cost pressures emanating from April’s hike to the minimum wage and business tax rates, which are forcing employers to raise prices to cover the increase in cost.
“Dare we say it, but Britain is now stuck squarely in stagflation. The economy is contracting, jobs are being shed at a breakneck pace and, all the while, inflation is rising without any signs of having yet peaked. This presents a major quandary for the Bank of England. Does the MPC cut rates now in the hope that inflation eases later in the year? Or does it hold off for fear of further stoking price pressures? We still think that an August cut is on the cards, but today’s data means further rate reductions beyond then will likely be very gradual.”
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
