Sticky inflation in the UK – set to be the highest in the G7 this year according to the Organisation for Economic Co-operation and Development (OECD) – hasn’t only made the Bank of England (BoE) look bad. It has put us back on the list of countries at high risk of recession, as sterner methods may be required to snuff the problem out.
A recession however is not inevitable. Both the OECD and the International Monetary Fund (IMF) conclude Britain will, narrowly, avoid one in its journey over the hump of price rises.
There’s lots of finger-pointing as to why the UK’s inflation is still running hot while it falls everywhere else. The original culprit remains the UK’s greater susceptibility to high energy prices. Other factors getting the blame are a mix of UK-specific ones and those driving prices up everywhere: our tight labour markets and shrinking post-pandemic workforce, wage increases, money printing, BoE errors, Brexit, supply chain disruption and basic goods shortages linked to the war, high pricing power and consumer tolerance of it. Meanwhile, factors such as excess savings and the preponderance of fixed-rate mortgages help explain why our inflation appears to be immune to the crushing force of interest rates.