UK growth may be more of a worry than inflation
British inflation leapt to 3.2% in August from 2% the previous month, the sharpest increase in the annual rate on record, data showed on Wednesday. As in the United States, pandemic-related distortions are muddying the waters. The UK government subsidised eating out a year ago and the hospitality sector got a temporary reduction in value-added tax. The question for the Bank of England, as for the Federal Reserve, is whether high inflation persists.
Supply chain disruptions have boosted prices of goods on both sides of the Atlantic. And some sectors are struggling to recruit staff, pushing up wages. Brexit is accentuating these problems. Yet inflation may prove less of a problem for the UK central bank. Prime Minister Boris Johnson is raising taxes on workers next year to pay for health and social care, which will leave households with less disposable income. The corollary of reduced price pressures may unfortunately be lower UK growth.
Source: Reuters (By Swaha Pattanaik; Editing by Ed Cropley and Oliver Taslic)