The Bank of England’s new top economist has predicted that inflation in the United Kingdom will reach or exceed 5% by early next year.
The Bank will make a “live” decision at its next interest rate-setting meeting on November 4, according to Huw Pill of the Financial Times.
It comes after Bank of England governor Andrew Bailey recently stated that the bank “will have to act” on inflation.
Since March 2020, the UK interest rate has been at a historic low of 0.1 percent.
Inflation growth fell to 3.1 percent in the year to September, according to recent statistics. However, rising energy prices, increased pay to fill record vacancy numbers, and supply chain disruption are all likely to raise it.
Mr Pill, who took over as the Bank of England’s new chief economist last month from Andy Haldane, said he would “not be surprised” if inflation rose to 5% or higher in the coming months.
“That’s a pretty unpleasant position for a central bank with a 2% inflation objective to be,” he told the Financial Times.
Mr Pill said: “I think November is live.” He declined to specify how he would vote when the Bank’s interest rate-setting Monetary Policy Committee meets early next month, adding that “it is carefully balanced.”
Separately, a consumer poll revealed that a large majority of people expect inflation to grow in the next 12 months.
According to GfK, a market research firm, 48 percent of those polled in October believe inflation would rise, up from 34% in September.
“Most than more buyers expect expenses for products and services to rise substantially in the coming 12 months,” said Joe Staton, client strategy director at GfK.
“At a time when our salaries are outpaced by inflation, this quick increase will have an influence on our capacity to shop and save, as well as our inclination to spend.”
Tough Times Ahead
According to Tony Brown, chief executive of New Start 2020, which owns Beales department shops, merchants are facing greater expenses, some of which are being passed on to customers.
He said that the cost of shipping products into the UK had increased from around $2,000 (£1,450) a year ago to $18,000.
Mr Brown explained, “The wholesalers are passing those expenses on to us.”
He said that the cost of a vacuum cleaner, for example, had increased from £49 to £79 in the previous year.
“We can’t absorb it, so that cost price has to be passed on,” Mr Brown explained. “We’re passing on a piece of it while taking a blow on the rest, so margins are diluted.”
“It’s a difficult moment for retail out there, and I believe what we need more than anything is some type of supply chain stability.”
Some of the world’s largest food manufacturers have also stated that they have raised product pricing to deal with increased raw material costs, as well as higher energy prices and supply chain challenges.
Unilever, the company behind PG Tips, Cornetto, Marmite, and Dove skin care, said that it has raised prices and plans to do so again next year.
According to the New York Times, the cost of palm oil, which Unilever uses in soap and moisturizers, has increased by 82 percent in two years due to labor shortages in Indonesia.
Higher prices have also resulted from poor crop output of soya bean oil, which is utilized in meals in Brazil.
People will have to get used to increased food prices, according to Kraft Heinz, which manufactures tomato ketchup and baked beans.
Nestle said last week that it, too, had raised prices, with a 2.1 percent rise in the third quarter.
Prices have risen as a result of increasing energy and raw materials expenses, as well as transportation costs, according to the manufacturer of Kit-Kats, Nescafé, and Purina pet food.