All eyes were on UK inflation data this last week, as a surprise jump in the rate at which prices increase took economists and investors by surprise.
Consumer prices rose 3% in January compared to the previous year, significantly above December’s reading of 2.5% and the 2.8% forecast by analysts. The surge in inflation was driven largely by the introduction of VAT on private school fees and the absence of a drop in airfares normally seen in January.
As Neil Birrell, chief investment officer at Premier Miton Investors, put it: “A stagnant economy, with sticky inflation is not what the government or BoE want to see, but policy measures to easily sort the problem will be hard to come by.”
Here are some highlights from the last seven days, plus a glimpse at the week ahead.
Wednesday’s sharp increase in the rate of inflation, which pushed it further beyond the Bank of England’s 2% target, puts a question mark over the central bank’s strategy of slowly bringing down interest rates to bolster tepid economic growth.
Financial markets have reduced their expectations accordingly, with the probability of a cut dropping to 17% from 24% after Wednesday’s reading. However, markets are still pricing in two more rate cuts by the end of 2025:
While food and travel expenses were defying expectations, there was a slight slowdown in the growth of house prices this month, thanks to a supply glut.
The average asking price for a UK home climbed 0.5%, which is less than normally seen in February, as the number of available properties for sale hit a 10-year high, according to new data from Rightmove (RMV.L):
Britain’s central bank was in the news again when the scale of losses incurred from its bond-buying programme in the wake of the 2008 financial crisis were revealed.
Slammed by critics as a “stealth subsidy to bankers”, the eye-watering bill arising from rising interest rates and the unwinding of the BoE’s quantitative easing initiative will have to be footed by the Treasury:
It was hardly surprising that stock markets took a hammering five years ago when the scale of the Covid-19 pandemic began to unfold. Perhaps more surprising is the fact dozens of London-listed stocks have never fully recovered.
Those still feeling the effects half a decade on have one thing in common – they were hit hard by the surge in inflation that resulted from disrupted supply chains during the pandemic:
