What’s Going On Here?Data out on Wednesday showed that UK inflation jumped to the highest level in 30 years last month – a major life event Brits might rather forget… What Does This Mean?It’s not just your imagination, afternoon tea has been getting more expensive: prices in the UK rose by a higher-than-expected 5.4% last month versus the year before – up from November’s 5.1% and well above the 4.5% the Bank of England (BoE) was expecting (tweet this). Rises came from all angles, with everything from food to furniture to footwear getting more expensive in the run-up to Christmas. But here’s a band-aid on a broken bone: data out this week also showed that the UK added a better-than-expected 184,000 jobs last month, bringing the unemployment rate down slightly to 4.1%. Why Should I Care?Zooming in: The peak? You can’t handle the peak.
Inflation isn’t likely to drop off in the UK anytime soon: the country’s energy price cap – the government’s way of limiting what suppliers can charge for energy – is set to rise about 50% in April. Consider too that job openings also hit a record high of 1.3 million last quarter, which might lead employers to offer better salaries and, in turn, pump more disposable cash into the economy. Put together, it’s hardly a surprise that economists think price rises are yet to peak: by their math, that won’t come until inflation hits 6.5% in April.
The bigger picture: Rate hikes are a double-edged sword.
The strong jobs market paired with decades-high inflation has economists predicting that the BoE will raise interest rates again next month. It still won’t be an easy decision, mind you: another rate hike should help slow down rising prices, but it would also make paying debts more expensive, which could leave already squeezed Brits with even less cash in their pockets. | 