Inflation rising to 10.4%

In my humble opinion. The monetary policy committee should have begun increasing the base rate about 6 months sooner than they did. Had they done this the desired impact of the rate increase would have been felt sooner and we would have found ourselves in a much better position than we are today. I was writing 5-year fixed rates at 1% at the end of 2021, if that wasn’t ringing alarm bells with the Monetary Policy Committee then what was? The war is by no means entirely to blame. We’re starting to see the impact of the base rate increases in some key areas but it’s impossible to ignore the impact that housing bills have had, a huge portion can be attributed to energy bills and the ’Basket of Goods’ measure. The hypothetical basket contains Milk, Sugar and Eggs which have all gone up by over 30% alone. Sadly, they’re not exactly easy items to swap out.

Raising interest rates is a traditional tool to reduce inflation, however external factors can come into play. ONS official data reveals that higher food and drink prices in the hospitality sector have contributed to inflation. In fact, food and non-alcoholic beverage inflation has hit 18%, the highest it has been since 1977. This inflation surge could be due to shortages that have been widely reported in the press, particularly regarding fresh produce and salad items. Additionally, the long-term closure of the hospitality sector due to the pandemic may be contributing to the inflationary pressures as businesses aim to maintain steady profit margins to keep their doors open. To address this issue long term, the government could implement supply-side policies to encourage agricultural investment within the UK especially post Brexit. Short term solutions could include improving trade policies with other countries to increase goods supply to the UK.