During this pandemic, the UK government has been spending an enormous amount on COVID-19 management. These spendings include support for health services, relief funds for those without income and keeping the local business alive. According to the International Monetary Fund, governments of better economies should spend more to keep their economies afloat during the pandemic and prepare for post-COVID recovery.
How has 2021 fared so far in Britain?
With the year starting to look better for the country, businesses and shops finally opened up after long lockdown protocols. But the pandemic caused a massive surge of consumer demand for many items, disrupted supply chains and with several conditions put in place, businesses couldn’t operate freely. All these factors pushed consumer prices.
When you take a walk on the streets, you will find the haircut prices have shot up as salons are split between agitated customers and costs of personal protective equipment. With even more people working remotely, the costs of data processing equipment have also gone up. All this while second-hand cars are selling at double their past prices as supply is slow and people are no more interested in replacing their old cars.
Yet, the price drops in other sectors due to insufficient demand like women’s shoes, office clothing, and even pregnancy tests have sort of balanced the equation.
What’s to follow?
In March 2021, the US inflation managed to hit its highest point since 2008, making the Federal Reserve officials comment that they are in no hurry to raise interest rates. After the US inflation, Britain’s consumer price index witnessed a 1.5% rise in April.
As global oil prices climbed back up from their pandemic lows, the local fuel and power bills shot up as well, which drove up the price index in April. Yet, April’s inflation numbers were way below Bank of England’s 2% target.
However, according to Andrew Bailey, Bank of England governor, inflation will start rising towards the target mark in the coming two to three months. Paul Dales, Capital Economics consultancy, said, “It does feel as if the risks are shifting towards the upside.” Pail further adds that high agricultural commodities and oil prices might push the inflation in the UK past the 2% target by year-end.
Many economy experts feel these inflation numbers to be temporary. As Ruth Gregory, Capital Economics, said, “If we’re right in thinking the crisis won’t leave a big scar on the economy, then the burst of inflation caused by reopening the economy should prove temporary.”
Bank of England is watching.
Higher electricity and gas bills with rising petrol costs have greatly added to the British inflation in April. The Bank of England feels the inflation will touch 2.5% at the year-end, primarily due to the rising oil prices. The inflation will further be fueled by the expiry of COVID emergency cuts to VAT in the hospitality sector in September.