The majority of financial column inches are given over to central bankers just about everywhere, saying something along the lines of ‘we think we’ve got this right and, if we have, rates are going to rise gradually over time. If we haven’t, there is a risk we’ll need a faster and larger hike and that risks cutting the economic rebound off – though for now, let’s not mess with the recovery and keep rates low and stimulus flowing’. The major hurdle rocketing its way to the UK economy, is rising inflation. Due to the three lockdowns, as Bank of England Chief Economist, Andy Haldane, so profoundly announced, there is a backlog of “accidental savers”, who have squirrelled away nearly £170bn, which is being injected back into the economy now. In typically British fashion, our scientific excellence in getting the vaccine administered, which has plugged one rather substantial hole, and opened up another. Bank of England Governor, Andrew Bailey has intimated that inflation is transitory due to lockdown forces, which is an encouraging sign. The Bank of England forecast inflation to rise 2.4% by the end of the year, before retracing back down to 2%. Currently, we are under the 2% target at 1.5%, which gives little slack, should inflation continue on this trajectory. A common remedy to high inflation, would be to hike interest rates, however that in turn would generate a drag which would most like stifle UK growth.
Over the in the US, we are seeing the momentum of their recovery continue. CNN Business and Moody’s developed a ‘Back-To-Normal Index’ which does not seem remotely bias at all. So far, the US is measured to be 90% of the way back to where it was before the pandemic began, less one polarising leader. There is still incredible trepidation in many states which is preventing workers from going back into the office, that has meant the forecast anticipates the final 10% is going to be very challenging to redeem. One of the glaring issues that will need to be addressed is the labour market. The recovery seems to be held back by an obstinate labour market, which simply can’t seem to find the jobs required. Economic forecasters predict that many jobs will be created throughout the remainder of the year, however states which suffered hardest, such as New York, Nevada and Hawaii, all still trailing the national unemployment rate of 6.1%. The US Non Farms payroll next Friday, will add some colour to the picture.
Have a great week.
This Morning Report was brought to you by Alex Ayoub