Surging U.K. Inflation Is Already a Problem for Johnson’s Agenda
(Bloomberg) -- Prime Minister Boris Johnson’s vow to turn the U.K. into a high-wage, high-skill economy is running into an immediate problem: a significant spike in inflation driven by the economic chaos he chose to gloss over at this week’s Conservative Party conference.
A combination of higher energy prices, labor shortages and supply-chain disruptions are forecast to push inflation past 4% this year -- double the Bank of England’s target. Financial markets imply that a separate index used to price student loans and train tickets could reach 7% by April.
“Wages are barely rising above inflation, and millions of key workers -- who got us through this crisis -- are facing a real-terms pay cut this autumn,” said Frances O’Grady, secretary-general of the Trades Union Congress.
Those issues are so thorny that they prompted BOE Governor Andrew Bailey last week to joke about how a plague of locusts may be next. But in speeches and interviews this week, the prime minister dismissed concerns about an impending economic crisis. Research and lobby groups are much less relaxed after Johnson’s speech on Wednesday.
The British Chambers of Commerce, which warned on Tuesday that businesses are facing an “historic surge” in inflationary pressures, said while Johnson’s future vision “should be rightly applauded,” firms need answers to problems they’re “facing in the here and now.”
Another key employers group also pointed out the difficulties ahead.
“The prime minister has set out a compelling vision for our economy: High wages, high skills, high investment and high growth,” Tony Danker, head of the Confederation of British Industry, said after the speech. “Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices.”
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