The Bank of England is unlikely to be concerned about rising inflation with slack remaining in the job market, said James Smith, Developed Market Economist at ING.
Key quotes
“We probably shouldn’t get too excited about UK inflation this year. But as ever, a lot will hinge on the jobs market, and how quickly it recovers after the likely unemployment spike we’ll see once the furlough scheme is wound down later this year. Either way, it’s likely there will be sufficient slack over the next couple of years to prevent wage growth from reasserting itself.”
“The major counterpoint comes from shipping costs, which have spiked over the past couple of months – both due to Brexit, but also worldwide container shortages. We will inevitably see the impact in consumer prices over the next few months, although in some cases retailers may find they lack the pricing power to fully pass these costs on, if we do indeed see demand pivot away from goods towards services.”
“From the Bank of England’s perspective, the inflation story does at least suggest little need to press ahead with negative interest rates later in the year. Equally, it also suggests that any BoE tightening is unlikely to come before 2023, at the earliest.”
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