Half of UK Households Fear Next Year’s Inevitable Inflation Hike



Posted on: 13th December 2016

New research suggests that the number of UK households concerned about inflation has hit a two and a half year high, triggered largely by the plummet in the GBP’s value in the wake of the Brexit vote. According to the data collected by Markit, more than half of all UK residents are bracing themselves for interest rate hikes over the next year.

Not that any of this comes as a real shock, given the way in which the Bank of England recently issued a warning to households across the UK, stating that a sharp rise in inflation is largely inevitable in 2017. This is largely due to the lower value of the pound impacting import costs, which is almost guaranteed to have a knock-on effect on the average household.

The BOE stated that the rise would affect the prices of many goods that enter the UK from aboard, including petrol. They warned that inflation would increase from 1.3% in 2016 to 2.7% next year and the year after. This is considerably higher than the forecast delivered just a couple of months ago, with Bank of England governor Mark Carney having stated that the target of 2% inflation will not happen until 2020 or later.

The warning was issued as interest rates were once again held by the BOE at an all-time low of 0.25%, though no further cuts are now on the cards. In the wake of the UK’s vote to leave the EU, the value of the GBP fell to its lowest in more than 30 years. Over more recent weeks, fears over a ‘hard’ Brexit have led to widespread investor uncertainty and further economic turbulence. UK exports have become more attractive due to the weak pound, though all imports brought into the country have skyrocketed in costs.

Carney said the MPC was making a trade-off between keeping inflation in check and shoring up growth, while adding that “exceptional circumstances” were making the usual BOE balancing act even more difficult than normal. He backed the current quantitative easing program (money printing) combined with all-time-low interest rates as appropriate strategies for the time being.

“The MPC is choosing a period of somewhat higher consumer price inflation in exchange for a more modest increase in unemployment. However, there are limits to the extent to which above-target inflation can be tolerated,” Carney told a news conference.

A far as UK households are concerned, the current state of play represents a double-edge sword. On one hand, those out to secure financing for largely any purpose whatsoever will for at least another couple of years be able to gain access to loans and financial services with incredibly low rates of interest. On the downside, the prices of many essential consumer goods look set to rise significantly in 2017, putting a further squeeze on those already struggling to get by.

“For households, the signs of an economic slowdown are notable by their absence. Perceptions of job security remain strong. Wages are growing at around the same modest pace as at the start of the year. Credit is available and competitive. Confidence is solid,” Carney added.