U.K. inflation tops 10%: ‘the worst is yet to come’

on Aug 17, 2022
  • U.K. inflation climbed again to a new forty-year high of 10.1% in July.
  • Vanguard economist Shaan Raithatha reacts to the CPI print on CNBC.
  • He expects the BOE to announce another 50 bps hike in September.

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The blue-chip FTSE 100 index is in the red on Wednesday after the U.K. Office for National Statistics said inflation climbed significantly to a new forty-year high of 10.1% in July.

Vanguard economist reacts to the CPI print

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In comparison, the Reuters estimate was for a narrower 9.80% year-over-year increase. Still, Shaan Raithatha (Senior Economist at Vanguard) warns the consumer prices have not peaked yet. On CNBC’s “Squawk Box Europe”, he said:

The worst is yet to come. With the energy price cap lifting again, inflation will probably exceed 12% or 13% in October. Data suggests price pressures are now broad-based. Services inflation continues to accelerate and it’s stickier part of inflation.

Core inflation, excluding food and energy, was up 6.2% in July versus a 5.9% increase expected. In the prior month, headline and core readings were at 9.4% and 5.8%, respectively.

What to expect from the central bank in September?

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Earlier this month, the Bank of England announced its biggest rate hike (50 basis points) since 1995 and the CPI print this morning Raithatha added, suggests a similar one is coming in September.

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This poses a challenge for the Bank of England, in an environment where forward looking indicators suggest a sharp slowdown in growth in the months ahead as cost-of-living crisis intensifies. In our view, the bank now has to do 50 bps at its next meeting.

BOE warns the United Kingdom will slide into a recession in the final quarter of 2022 – one that will last the longest since the global financial crisis. It has raised rates in each of its previous six meetings.

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