Global Courant 2023-04-20 14:20:18
LONDON – March 31, 2023: A pedestrian shelters from the rain as they pass fruit and vegetables for sale at an East London market. New data released on Wednesday, April 19, shows that food and non-alcoholic beverage prices increased by 19.2% in the year to March 2023, the strongest annual increase in more than 45 years.
Susannah Ireland/AFP via Getty Images
LONDON — UK inflation remained stubborn in double digits in March, largely driven by rising food prices, while the country’s cost-of-living crisis shows little sign of abating.
Wednesday’s headline inflation rate of 10.1% on an annual basis was above consensus estimates, and the consumer price index is almost a full percentage point higher than the Bank of England’s Monetary Policy Committee predicted in its February report.
Food and non-alcoholic drink prices rose 19.2% in the 12 months to March, marking their strongest annual increase in more than 45 years, the Office for National Statistics said on Wednesday.
As UK households continue to struggle with high food and energy bills, workers in several sectors have launched massive strikes in recent months over disputes over wages and working conditions.
The UK government is still providing energy subsidies for homes, limiting average household energy bills to £2,500 a year until the end of June, along with targeted support for certain vulnerable homes.
Despite this, Dominic Miles, global co-head of consumer at LEK Consulting, said Wednesday’s numbers showed “there is currently no respite from cost-of-living pressures.”
“Consumers are scrambling to save on essentials to maintain discretionary spending – this fragile balance is supported by continued energy subsidies, without which a tipping point could be reached,” he said.
Further monetary policy tightening imminent
While food prices are keeping headline inflation high for now, economists expect it to fall sharply in April due to the base effects of the energy price spike triggered in April 2022 by Russia’s invasion of Ukraine, while demand for energy has plummeted over the summer. will inevitably fall.
But the upward pressure on prices currently appears to be broader and more persistent than just these two components.
Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose by 6.2% over the 12 months, unchanged from February’s annual increase. This stickiness will worry the Bank of England.
The labor market remains tight, confirming once again that inflationary risks are firmly on the upside.
“Today’s figures show that the cost-of-living crisis in which many Britons find themselves may not be fading as quickly as first expected,” said Tom Hopkins, portfolio manager at BRI Wealth Management.
“The UK economy is not out of the woods yet, but if economic data continues to be less negative than expected, it could help boost business and consumer confidence.”
Widespread strikes and tight household incomes were cited as reasons for the country’s GDP flattening in February. Meanwhile, continued high inflation and labor market tightness are likely to lead the Bank of England to continue raising interest rates, putting further downward pressure on what is already expected to be the world’s worst-performing major economy in the next two years.
Despite the gloomy outlook, economic data has generally shown more resilience than many expected at the end of last year, avoiding a technical recession so far — characterized by two consecutive quarters of negative real GDP growth. The independent Office for Budget Responsibility and the central bank no longer predict a downturn this year.
Given the upside risks of inflation, labor market tightness and surprising economic robustness, markets are pricing in the Bank of England’s rate hike of a further 25 basis points at its May 11 meeting, which would leave the key bank rate at 4.5%. lie down. .
This consensus was reinforced by an upside surprise in February wage data ahead of Wednesday’s inflationary pressures in March, although private sector wages – the MPC’s preferred measure – continued to show signs of slowing momentum.
Upward rate revisions
Several economists took swift action on Wednesday to raise their forecast for final interest rates. Royal Bank of Canada Senior UK Economist Cathal Kennedy and Global Macro Strategist Peter Schaffrik raised their outlook to factor in a 25 basis point increase, but expect the Bank to remain on hold for the rest of the year.
Deutsche Bank senior economist Sanjay Raja noted that since the MPC’s March meeting, “all key metrics have beaten our expectations,” prompting the German lender to revise its forecasts.
“We now expect the MPC to make two more hikes, pushing bank rates to the top of our projection of final interest rates, which is 4.75% in June,” Raja said in a note Wednesday.
“We expect the MPC to hold on to its current data-dependent message in May. And more importantly, we now see risks to our terminal rate forecast to the upside.”
Berenberg also raised its rate forecast from a 4.25% stand in May to a 25 basis point hike to 4.5%, with a 30% chance of a further quarter-point hike to 4.75% at the June meeting .
“Looking further afield, we continue to expect the BoE to reverse its tightening only partially once inflationary pressures ease. In our view, a healthy outlook for long-term demand growth will await a host of supply-side headwinds in the UK. leaving – and the Western world in general – more susceptible to episodes of inflation,” said Senior Economist Kallum Pickering.
The Hamburg-based private bank still forecasts declines totaling 50 basis points in the fourth quarter of 2023, but new expectations for the spike mean bank rates will end the year at 4% before further cuts in 2024.
“Amid a highly uncertain outlook, we now expect cuts of 100 bps instead of 50 bps to leave our end-2024 call unchanged at 3.0% – our best estimate of equilibrium bank rates. We maintain our call for bank rates in 2025 not adaptable,” Pickering added.
