On the eve of the Bank of England’s latest rate decision, the Resolution Foundation thinktank said price pressures were likely to be stronger and last longer than the Bank had previously forecast. The Bank’s monetary policy committee – which said in June it expected inflation to peak just above 11% in October – is poised to raise official borrowing costs on Thursday for a sixth straight month despite signs the economy is weakening. The latest monthly health check of the services sector by S&P Global and the Chartered Institute of Procurement and Supply found that activity among private companies operating in the services sector has fallen to its lowest level since the winter lockdown in early 2021. Tim Moore, chief financial officer at S&P Global Market Intelligence, said: “Decreased levels of consumer discretionary spending and businesses’ efforts to contain costs due to rising inflation have combined to squeeze demand across the services economy. “The near-term outlook also looks subdued, as new order growth held close to June’s 16-month low and business sentiment was the second weakest since May 2020.” The Resolution Foundation pointed to some good news on inflation as prices of some commodities fell, including oil, but this was more than offset by rising gas costs. As a result, the UK’s annual energy price cap is now set to rise from just under £2,000 to around £3,500 when the new figure for October is announced at the end of the month. Jack Leslie, senior economist at the Resolution Foundation, said: “The outlook for inflation is highly uncertain, mainly due to unpredictable gas prices, but changes in recent months suggest the Bank of England is likely to forecast higher and later peak inflation. – potentially up to 15% in early 2023. “While market prices for some key commodities – including oil, corn and wheat – have declined from their peaks earlier this year, these prices have not yet fed through to consumer costs and remain significantly higher than they were last year. January”. In its annual assessment of the UK, the Organization for Economic Co-operation and Development (OECD) said a strong post-pandemic recovery is coming to an end and the economy faces slower growth with rising inflation and labor shortages. Mathias Cormann, OECD Secretary-General, said: “Like other economies around the world, the UK economy faces a number of headwinds, with pre-existing structural challenges magnified by the pandemic and Russia’s war of aggression against Ukrainian. “The key to stronger economic growth and better opportunities will be stronger productivity growth.”
