T he UK government has had plenty of economic problems to worry about over the past year but rising inflation has not been one of them. Repeated lockdowns and the shift to online shopping have helped keep price rises in check.
That period is now coming to an end. By the standards of the past – the mid-1970s, say – inflation is going to remain low this year. Unless things go badly awry, it should not become a real headache for the Bank of England. But it will start to influence policy.
Even after the small rise to 0.7% in January, annual inflation as measured by the consumer prices index remained well below the government’s 2% target. At least, that is the best estimate the Office for National Statistics can provide in the circumstances. The ONS has tried to adjust for the change in spending patterns (far fewer flights) and has imputed prices for sectors that are closed (restaurants). The picture, broadly, was that clothing and footwear prices went down, while the cost of food, furniture and household goods went up.
Bigger moves can be expected in the coming months, so that by April inflation is likely to be about 2%. First, there will be no repeat of last year’s collapse in oil prices. Motorists are already seeing the difference at the pumps from the recent jump in the cost of crude.
Second, Ofgem has raised its utility price cap by 9.2% and energy companies are raising prices for domestic customers. Third, unless Rishi Sunak decides otherwise in the budget, the temporary cut in VAT for sectors such as hospitality will end.
Guardian business email sign-upIt would come as no surprise to see inflation rise further over the summer. Many consumers are cash-rich after being deprived of spending opportunities, and a lot of businesses are clinging on by their fingertips. The combination of the two is likely to push up prices. Brexit will continue to have a temporary upward effect on inflation.
Rising prices would only prompt a marked change in policy from the Bank of England if there were signs that it was leading to a surge in wage inflation. That doesn’t seem all that probable, given the sharp rise in unemployment over the past year. But the Bank will start to think about how and when to unwind some of the emergency stimulus it has been providing.
Negative interest rates will be off the agenda.
Say what you like about Neil Woodford, the man sure has a lot of chutzpah. It takes a lot of gall to announce you are planning a comeback when your previous venture went belly up, with estimated losses to investors of about £1bn and an ongoing investigation into the collapse.
Woodford, a man clearly not troubled by self-doubt, thinks he can once again be the darling of the fund management community. If the frosty response from the Financial Conduct Authority is anything to go by, it may be some time, though, before he has the chance to restore his tarnished reputation.
The FCA did not exactly say that it would bar Woodford from operating his new business in the UK, but that was the gist of its message.
It would consider whether the firm was “ready, willing and organised” to meet regulatory standards now and in the future. That judgment would depend on the soundness of the business model and the quality of its management.
So, having considered Woodford’s recent record, is the FCA really going to approve his latest planned venture? Not a chance, even though the planned fund is said to be for professional investors only.
What’s more, the FCA announced it would be sharing its thoughts about Woodford’s suitability with the authorities in Jersey in order to prevent him operating out of the Channel Islands. Woodford may see this as kicking a man when he’s down, but it is what happens when you are deemed toxic.