Causes, consequences of UK’s stubbornly-high inflation | Canada News Media
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Causes, consequences of UK’s stubbornly-high inflation

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The United Kingdom’s inflation has remained stubbornly high at 8.7 percent in May – the same rate as the previous month – pressuring the Bank of England (BoE) to take action.

The BoE is expected to raise interest rates – a monetary measure used to control inflation – on Thursday for the 13th consecutive time.

The central bank is an independent body.

Meanwhile, the inflation rate in May stood at 4 percent in the United States. Japan saw inflation at 3.4 percent, while Germany registered inflation at 6.3 percent and France’s inflation stood at 6 percent.

Why is inflation so high?

Previous BoE forecasts had predicted that the UK’s inflation rates would ease by dropping to just above 5 percent in the final quarter of 2023 and falling below its 2 percent target in early 2025.

But big price rises across the economy, energy subsidies and Britain’s struggling post-pandemic jobs market have led to soaring inflation rates.

British inflation also accelerated sharply after Russia’s full-scale invasion of Ukraine in February 2022, which sent natural gas prices soaring across Europe.

The Office for National Statistics said core inflation – a measure that excludes volatile food, energy, alcohol and tobacco prices, and which the BoE views as a good guide to underlying price pressures – unexpectedly rose to 7.1 percent from 6.8 percent, its highest since March 1992.

Another measure of underlying pressures – services inflation, which is heavily influenced by fast-rising wages and Britain’s tight post-pandemic job market – also reached its highest since 1992 at 7.4 percent.

“The cost of airfares rose by more than a year ago and is at a higher level than usual for May,” Office for National Statistics chief economist Grant Fitzner said.

“Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

But food and drink price inflation dropped slightly to 18.3 percent from April’s 19 percent.

Meanwhile, producer price inflation also slowed much more sharply than economists had expected, with prices charged by manufacturers rising by 2.9 percent in the 12 months to May, down from an increase of 5.2 percent in April.

What is the British government doing about it?

Tackling inflation has been British Prime Minister Rishi Sunak’s priority before the general election next year.

“I’m working day in and day out to give families the support they need, while working to halve inflation, reduce debt and grow the economy,” he said on Twitter, a day before May’s inflation figures were released.

Mortgage costs are likely to increase for millions of homeowners, with Chancellor of the Exchequer Jeremy Hunt ruling out financial support for mortgage holders.

“Today’s figures strengthen the case for the government to stick to its guns,” Hunt told reporters in the UK.

“If you look at what’s happening in other countries, you can see that rises in interest rates do bring down inflation over time, that will happen here,” he added.

Markets see a 40 percent chance that the BoE will raise interest rates by half a percentage point to 5 percent, rather than the quarter-point move previously expected, in an effort to control inflation.

Paul Dales, chief UK economist at Capital Economics, told the Reuters news agency that he now forecasts the BoE raising interest rates by half a percentage point on Thursday after the latest numbers.

“The problem is that the recent surge in core inflation and the re-acceleration in wage growth shows that domestic inflationary pressures are still strengthening,” Dales said.

“This suggests the Bank may have more work to do than the Fed or ECB [European Central Bank].”

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PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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Statistics Canada says levels of food insecurity rose in 2022

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OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

The Canadian Press. All rights reserved.

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Statistics Canada says manufacturing sales fell 1.3% to $69.4B in August

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OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.

The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.

The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.

Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.

Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.

Overall manufacturing sales in constant dollars fell 0.8 per cent in August.

This report by The Canadian Press was first published Oct. 16, 2024.

The Canadian Press. All rights reserved.

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