UK inflation set to rise in 2022? Bank of England issues warning
The Bank of England’s Monetary Policy Committee (MPC) has expressed concern about rising inflation, with economic growth appearing to be weaker than expected.
Despite this, the MPC chose to keep interest rates at 0.1% – the lowest base rate on record – and maintained its bond buying program, intended to spur a post-pandemic recovery. , to £ 895 billion.
He also says he expects economic growth to be 1% lower than expected, as supply chain issues and shortages stifle the recovery of the UK economy.
What is inflation?
Inflation measures the rate of price increase over a period of time. It is therefore a key measure of the level of purchasing power in the economy.
If price increases exceed the rate at which ordinary workers’ wages rise, it means they are able to buy less, which has a detrimental effect on growth – and discourages investment.
The opposite of inflation is deflation, which is when prices fall and purchasing power increases.
However, deflation can also be harmful, as it is usually associated with economic recessions.
What causes inflation?
Inflation can be caused by an increase in gross production costs or by a sudden increase in consumer demand for certain commodities.
If an increase in the money supply in the economy exceeds productivity and the production of goods and services, it can also lead to inflation.
It is usually the responsibility of central banks like the Bank of England to step in and curb inflation when the rate gets too high.
Central banks may try to reduce inflation by raising interest rates – thereby cooling economic activity – or by tightening the money supply (a theory known as monetarism).
Is inflation good or bad?
Whether inflation is good or bad depends on your perspective. If you owe money, inflation contributes to inflating your debt. But if others owe you money, that’s a bad thing.
For ordinary consumers, however, persistently high inflation is usually a bad thing as their wages may not keep up with price increases, reducing their overall purchasing power.
Inflation can be especially bad for those who are unemployed, dependent on social security benefits or the state pension – unless these are increased to match the rate of inflation.
Governments can cut benefits when inflation rises. For example, from October 6, the UK government is preparing to withdraw the weekly increase of £ 20 to universal credit, depriving its six million beneficiaries of more than £ 1,000 a year.
The UK government has also already announced that the state pension will only increase by 2.5% in 2022-2023, suspending the so-called triple lock – but, he said, for a single exercise.
What is the UK inflation rate?
According to the Office for National Statistics (ONS), the UK inflation rate was 3.2% in August. This is an increase from 2% in July.
The rise in inflation last month – the largest month-over-month increase on record – is largely due to rising food and beverage prices, according to the ONS.
UK inflation set to rise in 2022?
A number of authorities are warning consumers to expect higher inflation for the remainder of 2021 and into 2022.
The Bank of England’s MPC has predicted that consumer price inflation – the most common measure of inflation – will hit 4% in the coming months.
Meanwhile, the Organization for Economic Co-operation and Development (OECD) estimates that inflation will remain high over the next two years, with a rate of around 3% expected in the UK by the end of 2022. .
Rising shipping costs and commodity prices are driving inflation up globally, according to the OECD.
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