Bank of England warns of Double-Digit Inflation

Interest rates increased by 50 bp to 1.75%

The bank of England has increased interest rates by 50 basis points. This was expected. Interest rates are now at 1.75%. This is a smaller increase than the increase by the Fed.

The strength of the British currency has fallen, meanwhile, with customer defaults as the cost of living rises. Now, the Bank of England is predicting inflation in the double digits, saying it will be 13% this October. It also says we should expect a sudden and long recession:

• Interest rates have been hiked up by 50 basis points by the Bank of England to tackle soaring prices.
• Year on year, inflation has catapulted to 9.4% in June with the BoE predicting 13% by the year’s end.
• The 50 BP was the BoE’s largest increase since the mid-90s, mirroring similar large increases by the ECB and Fed.

Food services

The canary in the coal mine in some ways is the food services industry, with John Lewis warning that double-digit inflation is upon the UK, exacerbated by the Ukrainian conflict and increasing cost of living.

Geopolitical and energy-related rises in supply chains have found their way onto the prices of food on shelves. The boss of John Lewis and Waitrose, Sharon White, warned in March that the 30-year high inflation rate of 5.5% was anticipated to grow further. White’s prediction was proven accurate when this August the Bank of England estimated inflation figures of 13% for October.

John Lewis has decided not to repay nearly £60m worth of tax relief given by the government during the pandemic. In what is being called a “drought” of the global food supply chain, we are now in the fifth consecutive double-digit inflation.

This has affected all 10 of the drinks and foods categories as indexed by the CGA Prestige Food Service Index — with the greatest levels of inflation of over 20% in the fats, oils, dairy, and fruit categories.

Instability continues to be the dominant feature of Food & Drink’s markets, and we foresee discontinuing into 2023.

CEO of Prestige purchasing, Shaun Allen

The industry is desperately looking for skill sets and resources that can be astute inside this volatile environment. There is not much time horizon for getting this in place. And even an expedient response is unlikely to remove this intense level of inflation — according to Allen.

There are also drought concerns, with some areas of the UK facing hosepipe bans, such as West Sussex. An amalgamation of threat points is coming together, including shortages of labour, and less yields of livestock and dairy due to mediocre grass growth. And the geopolitical tensions and sanctions continue even in grocery chains:

• Russian vodka was removed from Waitrose shelves.
• Anything made in Russia is removed from John Lewis and Waitrose shelves.
• All stores are looking for other ways that they can support the sanction, by analysing the supply chains.

We’ve seen a similar story in banking, with HSBC facing stern criticism for holding out for longer than most major banks, before finally cutting ties with Russia.

Takeaway — 10x worse 

I think that the Bank of England, and others, are deeply underestimating the extent of the recession. I believe the realities of the British economy are far worse than it is foreseeing.

One think tank, Resolution Foundation, has analysed this situation and surmised that there is going to be an immense spike in fuel costs in Britain. It says inflation could increase to 15% — this would be the highest inflation level since 1980.

This means that Britain is locked in stagflation. We are in an indefinite recession, with high inflation and no obvious way out. There is a silent crisis amongst the political class. Rishi Sunak, Liz Truss, Leader of the Opposition Kier Starmer — nobody has any clear solution or path forward.

The reality for the British people is that they going to be struck down by immense increases in energy prices. We are looking at increases of over 100 per cent. Remember, we already saw a 50% increase in April 2022. We can see further increases additionally this autumn.

Reportedly, there may be non-stop increases in energy costs following this quarterly. This means energy costs will continue to rise further. We have already seen immense rises in energy costs. Mortgages are also skyrocketing. So the Resolution Foundation think tank predicting an increase of 15% is an immense increase and warning light.

British people are already massively in debt, particularly with mortgages but also credit cards. All of this amalgamates at a time when the economy is going through a long and sudden recession. There were fewer jobs and gravity pulling down wages. This is looking like a massive crash waiting to happen.

I think the Bank of England is intensely underestimating the extent of the situation, and the scale of this recession.