Fears of a protracted recession as long as the one caused by the financial crisis in 2008 is weighing heavily on peoples’ optimism, according to a survey released last week. Consumer confidence dipped four points at the beginning of this month, according to Bank of America. components worsened.” The drop was driven by the Bank of England (BoE) earlier in August publishing a new set of forecasts that warned the UK is heading for a 15-month low recession, starting by the end of this year. Governor of the Bank, Andrew Bailey and the rest of the monetary policy committee said consumers will cut spending in response to the biggest cumulative two-year drop in spending power on record.
Those forecasts prompted investment bank, Goldman Sachs, earlier in August to brand the Bank as the gloomiest of all monetary authorities. Figures released 10 days ago showed inflation climbed to a new 40-year high of 10.1 per cent in July. But some economists have warned prices will climb over 15 per cent in January, caused by energy bills rising again after October’s large hike.
“Consumer inflation expectations had been falling for three months but rose in the first half of this month, shortly after the BoE’s fresh forecasts for inflation were published,” Bank of America said. Some “62 per cent of people who said they stopped working due to long-term illness reported no plans to return to work.” Interest rates may peak at 3.75 per cent by next May, the highest since October 2008, as the BoE steps up its fight against rising inflation, money markets are betting. Core inflation, a measure of underlying domestic price pressures, rose to 6.2 per cent. That upside surprise suggests “that the global drivers of inflation are being replaced by domestic ones,” Ruth Gregory, senior UK economist at Capital Economics said.
UK economist at Bank of America, Robert Wood said: “The Bank seems to be sensitive now to any signs of increasing persistence,” adding rates will jump 50 basis points in October and November. In its policy announcement earlier in August, BoE said it would act “forcefully” if inflation keeps rising.
It has already lifted borrowing costs six times in a row to 1.75 per cent. Economists agreed rates will rise, but not as high as markets are pricing in. Yael Selfin, chief economist at KPMG UK and Gregory, think they will hit three per cent. Andrew Sentance, former Monetary Policy Committee (MPC) member and now senior advisor to Cambridge Econometrics, said they will hit four-five per cent.
While soaring inflation effects various sectors, it is felt that it could cause a big reshuffle in Britain’s job market as workers increasingly prioritise higher salaries in seeking to manage rising living costs, a survey of 2,000 workers shows. More than half (55 per cent) of UK workers are actively looking for jobs with a view to securing higher salaries due to the financial pressures posed by the UK’s cost of living crisis, the research by jobs website Reed shows.
Reed chairman, James Reed said: “Due to runaway inflation and outstripping wage increases across many industries, millions will be on the move from this September onwards to secure a pay bump.” Half (47 per cent) of those polled cited low salaries as the main reason to leave their current jobs.
“During these challenging times, it’s clear that many workers – particularly those feeling the pinch from the cost-of-living crisis – deserve a pay rise. For most, the best way could be to secure a new job,” said Reed. (The writer is our foreign correspondent based in the UK)
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