The Office of National Statistics reports that the inflation rate in the UK has risen to 2.1%, passing the Bank of England target of 2%. Professor Abhinay Muthoo of the Department of Economics and Professor Nigel Driffield of Warwick Business School comment here on what factors could have caused this jump.
Professor Abhinay Muthoo of the Department of Economics said: "Figures released by the UK’s Office for National Statistics (ONS) show UK inflation has jumped to 2.1% in the year to May. This means inflation is now above the Bank of England target of 2%. There is concern amongst some economists that inflation will rise further, and more importantly, that these higher levels of inflation are permanent. Hence, for example a call by some that the Bank of England should quickly raise interest rates.
"I believe this higher than target inflation is very likely to be temporary. This current increase is driven by a few factors. One being a sudden and sharp increase in consumer spending as consumers are rushing to spend their savings from the past year of lockdown, and supply cannot, at the moment, keep up with that strong demand. I expect inflation to return to under Bank of England’s 2% target by around early next year."
Professor Nigel Driffield of Warwick Business School said: “Supply of various goods and services is or has been constrained by Covid, and while many people have suffered financially because of Covid there is also a high level of pent up demand. This pertains not only to goods and services made here, but also imported. So for a while we are going to see pressure on inflation as the economy opens up.”
16 June 2021
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