Inflation generally measures how the costs of certain goods services in an economy rises over time. In official figures released today, the ONS confirmed that inflation rose from June to July 2020.
Melissa Davies, the Chief Economist at Redburn, dove into what caused this rise in inflation to occur: “UK CPIH inflation rose from 0.8 percent in June to 1.1 percent in July, supported by monthly increases in clothing, petrol and household goods prices (CPI increased from 0.6 percent to 1.0 percent).
“Changes reflect support from the reopening of the economy and the moderation of oil price declines (still down -24 percent YoY).
“There are downside risks to the inflation outlook as unemployment rises in the autumn.
“The likelihood is we will still be left with a large margin of spare capacity once the initial rebound in growth fades.”
“Wages are falling outright now in the UK – this is a function of the furlough scheme, but it’s still something the Bank of England should be worried about.
“Traditional monetary policy stimulus options are limited now, the central bank can just keep government borrowing costs low and facilitate further fiscal stimulus.”
Rishi Sunak and the wider government have extended their various support schemes throughout the year but it has been repeatedly detailed that they cannot continue forever.
Under the current schedule, support measures such as the furlough scheme and SEISS will end by October 2020.
“If I say it should end in November, critics will just say December.
“But the truth is: calling for endless extensions to the furlough is just as irresponsible as it would have been, back in June, to end the scheme overnight.”
In the same speech, the Chancellor of the Exchequer confirmed that further announcements will likely be forthcoming in the Autumn budget: “My Right Honourable Friend the Prime Minister has set out our vision to level up, unite the country, spread opportunity, and repair and heal the wounds exposed through this crisis.
“I can tell the House we will produce a Budget and Spending Review in the autumn.
“And, we will deal too, with the challenges facing our public finances.
“Over the medium-term, we must, and we will, put our public finances back on a sustainable footing.”