Jun 28, 2022
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Senior UK economist warns inflation will persist

Jun 28, 2022

The British economy could be in line for a “painful inflation spiral”, the Bank of England’s (BoE) chief economist Huw Pill has warned.

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He points to a shortage of workers and businesses’ willingness to pass on higher costs to customers as the cost of living continues to rise. He said the double negative “threatens to trigger a second wave of inflation” that currently stands at an already-painful 9%.

Current high rates of inflation have seen consumers cutting back on some discretionary spending and with clothing prices likely to see some significant rises this autumn, the fashion sector could be affected in a way that so far it hasn’t been.

Huw Pill warned of “second-round effects in prices, wages and costs that exacerbate the magnitude and, crucially, the persistence” of high inflation. It raises the spectre of an inflationary spiral, where wages and inflation move ever upwards in tandem, the Daily Telegraph reported him as saying.

Pill added that there are fears that employers chasing staff in the current low unemployment environment could offer higher pay, helping to trigger a wage-price spiral that keeps inflation elevated. 

While some employers in the public sector are holding out against inflation-busting wage rises, some private-sector businesses have already been offering higher annual increases or one-off payments to either attract or retain staff.

The economist’s comments came as recession fears were stoked by signs that 43% of consumers are cutting back on food spending, driving a 0.5% decline in May retail sales, according to Office for National Statistics. That’s up from 8% in September 2021. Half of households are also reducing their electricity and gas usage and 45% are reducing their non-essential car journeys. 

Last week, a survey by GWI showed a third of UK consumers are now feeling insecure about their finances. Some 62% have felt a moderate/dramatic impact of inflation and 90% feel the cost of living is more expensive compared to six months ago.

When asked what UK consumers are likely to spend less on, treats/luxuries, nights out or eating out and clothing topped the list.

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