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ENGLAND ENTANGLED BY 40-YEAR HIGH INFLATION

Harvest Global Markets :

England’s Consumer Price Index data released at 11.00 HRS PKT took the market by surprise as yearly inflation increased by 10.1%, greater than the market forecast and previous release of 9.8% and 9.4%, respectively. The corresponding month-on-month Consumer Price Index witnessed a surge of 0.6%, i.e., higher than the anticipated figure of 0.4% but lower than the previous month’s inflation rate of 0.8%.

The more than-expected inflation figure signals an aggressive interest rate hike by the Bank of England (escalating the probability of recession) in the coming months as it seems that England is still unable to get its grip on the infuriating inflation. Inter-bank rate of England has been persistently increasing for six consecutive sessions. England has experienced a swell of 165 basis points in its interest rate since December 2021. It is worthy to note that the Bank of England was the first influential bank to increase its policy rate after Covid-19 in order to tackle the dreadful inflation in the economy. The staggering news sent GBP/USD flying high, and it will likely remain bullish in the short term.

Nevertheless, the fear of recession may shadow the market in the long term, leading to bears chasing the bulls. The main culprits of inflation are the soaring food and energy prices. Energy prices are likely to jump to £3582 in winter due to excessive demand and can surpass £4000 at the start of 2023. Rising inflation and interest rates may squeeze households’consumption further as real wage rates have dropped by 3% in the last three months and are expected to decline more; the wage rate spirals may further impact inflation as inflation-encumbered employees may demand a boost in their remunerations. Consequently, policymakers anticipate the inflation rates to peak at 13.3% in the coming fall season.

Thus, England is now at the mercy of sinister stagflation.

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