The UK Economy Expects A Slightly Fall In Inflation, Expected To Fall By 0.1%
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UK economic data will be released next week. Wednesday will be a particularly special day, as CPI results will be released.
Previous data
The UK inflation rate fell in November 2022 from its previous record high in October. The measure of price growth across the UK economy fell from a 41-year high of 11.1% to 10.7%. This is a key indicator to understand how severe the ongoing cost of living crisis has become.
This seems to confirm the predictions of the Bank of England and other economists that the inflation crisis has reached its peak.
There are many factors that contribute to high product prices. Soaring energy costs are a key factor.
Demand for oil and gas was higher as life returned to normal after Covid. At the same time, the war in Ukraine meant that fewer raw materials were available from Russia, putting further pressure on prices.
The war also reduced the amount of grain available, driving up food prices.
Source: investing.com
Predictions
For now, the focus shifts to the UK in the coming week. UK CPI will be released on Wednesday. They are expected to fall slightly again to 10.6%. The base indicator is estimated at 6.2% y/y, which means maintaining the previous level.
Bank of England
The Bank of England has a target of keeping inflation at 2%, but the current rate is more than five times higher.
Its traditional response to rising inflation is to raise interest rates.
When people have less money to spend, they buy fewer things, reducing the demand for goods and slowing down price increases.
In December, the Bank raised interest rates for the ninth time in a row, lowering the main interest rate to 3.5%.
Inflation and wages
Lower inflation does not mean prices will go down. It just means they stop growing so fast.
The Office for Budget Responsibility (OBR), which assesses the government's economic plans, predicts that inflation will fall to 3.75% by the final quarter of 2023, well below half of current levels.
Prime Minister Rishi Sunak said halving inflation by the end of 2023 is one of five key commitments.
But it is unclear whether he will announce new policies to achieve this, or if he is simply relying on earlier interventions.
Wage increases for many people have not kept up with rising prices.
This is despite wage growth at the fastest pace in more than 20 years.
According to official data, average wages - excluding bonuses - increased by 6.1% in the three months to October 2022 compared to the same period in 2021.
But when inflation is taken into account, the average wage actually fell.
Economic situation
The economy grew by 0.1%, supported by demand for services in the technology sector and despite households being squeezed by rising prices.
The Office for National Statistics (ONS) said pubs and restaurants also boosted growth as people went out to watch football.
While November's gross domestic product reading was much better than expected, the overall picture still suggests the economy is stagnating as food and energy bills soar. The Bank of England predicts that the UK has already entered its longest recession in history. Economic growth has slowed sharply in the country since October, partly due to strikes. Economists generally expect the country's economic performance to be among the worst in the developed world over the next two years.
Source: investing.com
