Hannah Audino, economist at PwC UK says,
"High inflation is here to stay in the short-term. It will take time for global supply bottlenecks and shortages to normalise and energy prices to stabilise. CPI could peak between 5-6% in Q2 next year as a rise in the energy price cap and the reversal of VAT cuts in hospitality and tourism create the perfect storm for higher consumer prices.
"The big question is - what will the Bank of England do? Due to time lags, the Bank will only raise interest rates when it judges that high inflation will persist into the medium-term. Another consideration is what’s driving inflationary pressures, as monetary policy is unable to solve the current global supply-side inflationary pressures.
"In the Bank’s central forecast, they continue to view temporary supply-side pressures as the main inflationary culprit, which are expected to gradually ease into the medium-term. We share the view that temporary supply side measures are the main inflationary culprit. Moreover, inflationary risks are skewed to the upside, for example because the Brexit effect may mean these supply-side pressures persist for longer in the UK than other advanced economies
"The Bank will need to balance these considerations against the tightening in the labour market and rising expectations of inflation."
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