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20.09.202115:34 Forex Analysis & Reviews: UK reports on unprecedented rise in consumer prices

Exchange Rates 20.09.2021 analysis

In the UK, inflation unexpectedly reached the highest level last seen nine years ago. In recent months, consumer prices surged by 1.2% showing an absolute record.

The UK Office for National Statistics unveiled that in August, consumer prices advanced by 3.2% on a yearly basis (in July – by 2%), exceeding analysts' expectations. Such a high reading was last recorded in March 2012.

The government's attitude towards the restaurant industry during the pandemic peak is the main reason for such a surge in inflation. Thus, in August of 2020, the UK government offered the following program to support the business: from Monday to Friday, visitors of bars, restaurants, and cafes could benefit from a 50% discount. The scheme was called "Eat out to Help out". The key aim was to make people spend their money after the lockdown to support a rise in economic indicators.

Notably, the Bank of England is not planning to curb the rising inflation, tighten monetary policy and raise the key interest rate. Yael Selfin, Chief Economist at KPMG, assures people that now any tightening of the monetary policy is extremely risky as it may lead to economic stagnation. The current pace of economic recovery is not as fast as expected. That is why the UK government is likely to take measures only in the middle of the following year.

In general, the UK economic recovery is not confident. Boris Johnson's approach and full economic reopening caused a jump in demand on goods. At the moment, it is hardly possible to meet such demand. Of course, Brexit also added fuel to the fire. According to the new laws, migrants who want to find a job in Britain simply cannot get into the country. In addition, those who worked in the UK were forced to return to their homeland. This, in turn, caused lack of labor forces, including long-distance drivers, and serious supply chain disruptions. Such a crisis in the UK logistics sphere was last recorded in the 1970s. At the same time, the local labor market is rapidly recovering. Recently, the number of vacancies advanced by one million.

Andreeva Natalya,
Analytical expert of InstaForex
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