Cost of living crisis weighs on UK economy as millions forced to skip meals – business live

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This is no surprise to us at Netmums. Mums have been skipping meals since this summer, according to our research: Cost of living crisis weighs on UK economy as millions forced to skip meals – business live costofliving

The pandemic raised the global demand for goods and reduced their supply; Russia has cut back severely its supply of gas to Europe. These have had dramatic effects on relative prices.

In particular, import prices have risen significantly compared with the price of UK output. This has unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels but its consumption value has not. Broadbend explains that the Bank’s Monetary Policy Committee will respond promptly to news about fiscal policy .But much of the overshoot in inflation is due to higher import prices . That effect should fade as prices stabilise.Broadbent explains that the path of wholesale energy prices is highly uncertain, but financial markets suggest we’re more likely to see negative than positive inflation in wholesale gas prices a couple of years from now.

Domestic inflation tends to be persistent, however. And reducing it requires the economy to grow below its trend rate for a period of time, he warns.Because they’ve depressed real incomes, that slowing in demand will to some degree follow from the very same rises in import costs that have pushed up headline inflation.

Equally, if government support mitigates that effect, there is more at the margin for monetary policy to do. The MPC is likely to respond relatively promptly to news about fiscal policy. Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.

 

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