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PwC comments on September's ONS CPI data

20/10/21

Hannah Audino, economist at PwC comments on September's ONS CPI data: 

"We expect inflation to remain high and volatile in the short-term, but we do not expect an imminent rise in interest rates from the Bank of England. This is because:

  • There are many factors feeding irregularly into the monthly inflation data right now (such as base effects) and the Bank will likely need more data before it makes a decision. 

  • We expect current inflationary pressures to largely be transitory and to gradually fade as supply bottlenecks and shortages normalise and energy prices stabilise - although the Brexit effect may mean these pressures persist for longer in the UK than other advanced economies. 

  • Monetary policy is unable to solve global supply-side inflationary pressures. 

  • A rise in interest rates could jeopardise the UK’s economic recovery, especially given mounting risks to the economic outlook, including supply chain issues and the huge disparities we are seeing in the labour market. With some sectors in stress due to shortages and others in slack, it is difficult for the Bank to know which way to turn with monetary policy.

"Next week’s Autumn Budget might shed more light on the likely path for monetary policy - for example, if the Chancellor cuts back on spending, the Bank may judge the risks of a rate rise to the UK’s economic recovery as too large.

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