UK Inflation Should Make for Grim Reading

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UK Inflation Should Make for Grim Reading

UK Inflation Should Make for Grim Reading



The Bank of England will take centre stage today and we can expect its quarterly inflation report and press conference to make for grim reading.

Mervyn King will first set out the detailed economic analysis and inflation projections on which the Bank's Monetary Policy Committee bases its interest rate decisions. He will then present an assessment of the prospects for UK inflation and GDP growth.

It's the GDP growth part that the spread betting markets will focus on, and most expectations are for a downgrade to their forecasts.

Where only a few months ago the Bank had expected growth to be just under 1% for the whole of 2012, the likelihood is that they will now revise this to flat-lining at best.

This gloomy picture shouldn't come as too much of a surprise following the unexpected double dip recession that was confirmed in the latest GDP figures.

No doubt we will see the usual comments bemoaning the situation in Europe which, admittedly, is worsening by the day.

Despite an economy that is not growing at the moment, the UK's labour market has actually been rather better than we would expect.

Considering the depth of the recession that followed the banking crisis in 2008, unemployment has yet to hit the big 3 million mark as it has in previous recessions.

Businesses have now had two years where they've been expecting things to pick up much more and so they have been recruiting staff to take advantage of the ''upturn'' when it came.

A flexible labour market has also meant that it's easier to find full or part-time work if it's there.

But the so called 'upturn' has not materialised and there's little prospect of it doing so at this moment in time.

Unfortunately this means that the state of the labour market is expected to decline. In fact, we could well see the total number of unemployed creep towards the 3 million mark over the next year.

A mildly bright piece of news from today's report will be a reduction in the inflation forecast. This has been dropping like a stone in the past few months, back towards their 2% target.

The reduced forecast will no doubt pave the way for more QE from the Bank of England as they continue to throw good money after bad.

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By Simon Denham, 8 August 2012


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