End of Easy Money: Bank of England Talks Tightening Amid “Altered Consumer Behavior,” Visions of Persistent Inflation

by Wolf Richter
Wolf Street

“It’s appropriate” that markets price in “a significantly earlier path of tightening than they did previously.”

Inflation in the UK has shot from below 1% earlier this year to 3.2% in August, the highest in 10 years, with core inflation – excluding food and energy – hitting 3.1%. OK, there was some “base effect” due to the very low inflation rate a year earlier. But the current spike of inflation, as measured by the last six-month average inflation annualized, is already at 4.5%, unrelated to the base effect. An annual inflation rate of 4.5% would be the highest in decades. In September, the Bank of England hiked its forecast for annual inflation by the end of the year to over 4%.

While this is still lower than the red-hot inflation in the US, it is way above the Bank of England’s target of 2.0%.

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