MPC to hike again as UK inflation trumps growth worries
Memories of the inflationary tsunami that hit the UK in the 1970s have been rekindled by inflation surging to a 40-year high and climbing. But we think economic, structural, and institutional differences mean a repeat of the 1970s’ experience is unlikely. The 1970s heralded an inflation regime shift in the UK, triggered by a long series of economic shocks culminating in the 1973 oil crisis.
What you will learn:
- The balance of power between workers and employers has shifted in favour of the latter. Wage bargaining today is less likely to be collective and more likely to be idiosyncratic than in the past. This has broken the link between inflation and pay growth.
- The UK’s monetary policy regime has transitioned toward inflation fighting, a shift that is unlikely to be reversed.
- The MPC’s recent behaviour has clearly shown they are prioritising fighting inflation at the expense of supporting growth.