UK Inflation on track for double digits

Hussain Mehdi at HSBC Asset Management warns that the worst is yet ahead, with inflation expected to reach double digits for the first time since 1980.

The UK’s consumer-led economy is under severe pressure due to the high cost of living. This means that there is a high risk of recession.

The Bank of England will likely remain in an uber-hawkish mode to counter the risk of wage-price spirals. Recent data suggests a hot labour market contributing to inflationary pressures.

We believe a 50 bp increase at the August meeting and further tightening at future meetings this year are likely.

Despite this challenging economic backdrop, the UK equity market has performed well this year. Blue chip indices have found support from higher commodity prices, exposure to value, and defensive names as well as limited exposure to the tech sector.

Inflation is not a problem that the UK alone faces. The combination of Russia’s war against Ukraine and the ongoing supply chain problems sparked by the pandemic is causing price pressures around the globe.

However, Britain’s inflation rate is 9.4pc higher than that of the US and the eurozone. It is just below Ireland’s.

Although Switzerland’s inflation was only 3.4pc in the last month, it’s still at a 29-year high.

However, it could get worse. The rate of inflation in Turkey jumped to nearly 80pc over the past month…


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