Andy Bruce

LONDON (Reuters] – Britain’s recovery from coronavirus lockdowns has been hampered in part by supply chain problems, a surge in inflation, and the possibility of a rise of unemployment. This makes it difficult for policymakers to steer the recovery.

Andy Haldane, former chief economist at Bank of England, says Britain is currently in VILE mode of low inflation and volatile inflation.

The BoE seems to be on track to increase interest rates in February, according the financial markets, but economists are worried about signs of an ailing recovery and don’t believe so.

These are just a few of the indicators that will be important to economic policy makers.

INFLATION

Inflation in Britain reached 3.2% in August. This is the highest level in nearly a decade. Although the inflation rate rose by 2% in July, it was due to some unrelated factors. The BoE however believes the inflation rate is rising above 4% and more than twice its target of 2.2%.

Any signs consumers lose confidence in inflation being contained over the long-term are monitored by BoE.

According to Citi/YouGov surveys, inflation expectations in the coming year rose dramatically in September. This may have been a factor in the BoE rate-setters’ minds. The case for increasing rates is strengthening, according to them last month.

(GRAPHIC-UK inflation on track to hit double BoE’s 2% target: https://fingfx.thomsonreuters.com/gfx/polling/klvykgwngvg/Pasted%20image%201633367277330.png)

(GRAPHIC-UK public inflation expectations lurch higher: Citi/YouGov: https://fingfx.thomsonreuters.com/gfx/polling/movankgqdpa/Pasted%20image%201633367973975.png)

GROWTH FAILING

The economy of Britain grew quickly earlier this year when it was released from the third COVID-19 lockdown. However, latest data shows that momentum has been lost. Official data shows that economic growth was slowing to a crawl during July. Consumer surveys and business survey results suggest that the slow growth continues into the second part of the year, even after the worst supply chain challenges seen in recent weeks.

(GRAPHIC-UK economy loses steam as shortages bite: https://fingfx.thomsonreuters.com/gfx/polling/dwpkrdwzavm/Pasted%20image%201633367436418.png)

SUPPLY CHAIN PROBLEMS

According to the most recent IHS Markit/CIPS survey, there has been little improvement in supply chain management and problems with staffing for British manufacturing companies that have had to deal with significant delays from suppliers.

This was before panic buying at petrol stations caused by shortages of tanker drivers led to in late September the largest week-on-week decline in vehicle traffic since June. Another unpromising sign is the drop in automobile traffic.

Since Britain’s decision to end its free movement within the European Union, the shortage of workers has increased. This is a problem that can be seen elsewhere in the world. Boris Johnson, the Prime Minister, denied that Britain was currently in crisis. Instead, he said that Britain’s natural ability to organize its logistics and supply chain is strong.

(GRAPHIC-Going off-road: panic buying keeps some motorists at home: https://fingfx.thomsonreuters.com/gfx/polling/zjvqkjbywvx/Pasted%20image%201633367529772.png)

CONSUMER SPENDING

Last month’s GfK gauge for consumer confidence took a big hit due to supply disruptions and increasing inflation. This is a historically reliable indicator of household expenditure.

Also, households are facing reductions in state benefits as well as tax increases for the working class.

Last week’s BoE data showed that consumers continue to lean more toward saving rather than spending.

(GRAPHIC – Consumer spending is recovering – but are there tougher times ahead for them?: https://fingfx.thomsonreuters.com/gfx/polling/xmvjokmnnpr/Pasted%20image%201633367592303.png)

WAGE AND JOBS

The economy’s recovery and government’s job-protecting furlough program have helped Britain’s unemployment rate fall in six of its last seven monthly reports.

This scheme came to an end at the September 31st and the BoE will continue monitoring the situation for signs of rising unemployment.

While wages have been increasing rapidly, the official measure for earnings growth has been affected by statistical distortions due to the pandemic. Inflation has begun to affect earnings. For three consecutive months, the official real-terms indicator of total wage increase has dropped.

(GRAPHIC-UK unemployment rate falls, for now – while pay rises: https://fingfx.thomsonreuters.com/gfx/polling/myvmnoeabpr/Pasted%20image%201633367871071.png)