For seven consecutive months, the UK has experienced an inflation rate above 10%. Contrary to analysts’ expectations, the inflation rate hardly ever falls, if at all. Analysts had expected inflation to fall just below 10 percent in March, to 9.8 percent. The cost of living, in particular, continues to rise. The prices of food and soft drinks increased by no less than 19.1%. The figure hadn’t been this high since 1977. Costs for bread, hot drinks, chocolate and sweets have notably risen, according to Britain’s Office of National Statistics.
The fact that the British are so burdened by massive inflation is also painful for British Prime Minister Rishi Sunak. He has promised to halve inflation by the end of the year. Its Chancellor of the Exchequer Jeremy Hunt says the government is “on track” to “reduce inflation and ease the burden on households and businesses”.
Expected rate hikes
The UK central bank is once again faced with a difficult task, now that the inflation rate is disappointing again. Earlier, the Bank of England (BoE) governor said investors should not count on further rate hikes. But the British certainly don’t seem to be in that “luxurious position”. Investors now expect three more rate hikes this year. Interest rates are expected to reach 5% by the end of the year. The interest rate is currently 4.25%.
Market analyst Hugh Gimber of JP Morgan Asset Management says “the BoE is far from sure that depressing prices are under control.” However, the positive details are visible even as we zoom further into the UK economy. For example, price inflation among manufacturers fell from 12.8% to 7.6%. In particular, this seems to indicate reduced pressure on global supply chains.
Brexit
Compared to other countries and regions, the British are doing the worst economically. For example, inflation in the US fell from about 6% to 5%, in Germany from 9.2% to 7.8% and in France from 7% to 6.6%. Inflation across the Eurozone fell from 8.5% to 6.9%. Brexit, in particular, plays a role in the British economy.
Indeed, of the major economies, only the UK has large numbers of people leaving the job market. The labor force participation rate is lower than in 2019 and there are hundreds of thousands more people on long-term sick leave than before the pandemic. Post-Brexit visa rules have created problems in the labor market that did not exist before, said Karen Ward, head of market strategy for Europe at JP Morgan Asset Management.