Research Briefing | Oct 8, 2021

UK | Households start to feel the squeeze

UK | Households start to feel the squeeze

Government support schemes have been hugely successful in mitigating the financial consequences of the pandemic to consumers. But at the same time this support is being withdrawn, household spending power is being squeezed by a surge in inflation.
Rising oil and gas prices mean we now forecast CPI inflation will reach 4.5% in early-2022. We continue to expect the rise to prove transitory, but we will lower our forecast for GDP growth in 2022. And though, ultimately, we don’t expect the MPC to follow through on recent hawkish rhetoric, a rate hike is a live risk.

What you will learn:

  • While we remain in the optimistic camp, expecting only a modest uptick in unemployment in Q4, there is still much uncertainty about what will happen in the labour market now that the furlough scheme has ended
  • Though the headlines have focused more on panic-buying and shortages of fuel at the pumps, the past couple of weeks have also seen the oil price climb steadily, rising above $80 a barrel this week
  • These developments have caused us to significantly revise up our inflation forecast for the rest of 2021 and 2022.

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