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The lugubrious outlook of the Monetary Policy Committee (“MPC”) of the Bank of England suggests there are inflation storms ahead. It is expected now to surge to 8% (and conceivably beyond) by as early as April this year, putting ever greater pressure on households.

In a letter to the Chancellor of the Exchequer (“the Chancellor”) dated 17 March 2002, the Governor of the Bank of England, Andrew Bailey (“the Governor”), got out of the starting blocks with forthright condemnation of the actions of Vladimir Putin in Ukraine before then training his inflation sights on data from the Office of National Statistics issued on 16 February 2022, putting the Consumer Prices Index at 5.5% in January this year.

In what appeared the exchange of courtesies the Chancellor on the same day wrote back and said:

The UK Government stands with the people of Ukraine to uphold our shared value of freedom and democracy. I am grateful to the Bank for its support for the UK Government’s response to Russia’s invasion.

There did not appear to be any disagreement from the Chancellor as to the strategy proposed by the Governor for tackling the prospect of storming inflation. So a united front for now but what about as the next General Election starts to appear on the horizon … hmm? Will it remain so if the position gets worse and Conservative MPs have Partygate popping up again on their doorsteps? We shall see.

Echoing the Minutes of the Meeting of the MPC on 16 March 2022, the Governor blamed global energy prices and the further increase in volatility arising from the Russian Federation’s unprovoked invasion of Ukraine for the prospect of inflation soaring to and beyond 8% in the months around the corner.

Historic Inflation

Not for more than 30 years (April 1991) has the UK seen the instability of such unattractive rising prices. The 1991 recession culminated in Black Wednesday when the UK crashed out of the European Exchange Rate Mechanism (ERM).

It can now be anticipated this rather rapid squeeze could go on until households’ pips squeak and for many, this could exacerbate personal debt and insolvency.

The Institute For Fiscal Studies said on 10 March 2022 that the cost for the Chancellor to offset this latest hurdle to vault would require an additional £12 billion of added spend on top of the £9 billion commitment announced in February to offset the effects of higher energy prices.

The Governor informed the Chancellor the prospect of an inflation target of 2% is a medium term goal. It appears that the UK economy is therefore likely to be in for some considerable inflationary storms ahead over the next year or two.

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