Economic Monitor
Stagflation ensues with inflation at its highest since the 80s and the labour market its tightest in decades
"The economic recovery from the pandemic has experienced a series of shocks, the effects of which are likely to be felt well into 2023. High inflation and a tight labour market implies little slack in the economy, making it harder to fill the gap in economic output that has emerged since the pandemic’s onset, and forcing the Bank of England to walk a tightrope between tackling inflation and forcing a recession.
Hence, the future outlook is highly uncertain, indeed at the whim of global economic shocks and their duration. Basic commodities such as energy, metals and grain are all witnessing at or near record-high prices, dampening domestic consumer confidence and business investment appetite. With further monetary tightening anticipated over the next six months, the resultant higher borrowing costs are likely to weigh further on economic activity. With no sign of widespread labour shortages easing in the near-term, and a further income shock anticipated in October (when Ofgem’s price cap is lifted) the outlook for 2022H2 is materially weaker."