Bank of England Says Minimum 2 Years to Control Inflation
Published / Last Updated on 08/08/2022
The Bank of England Monetary Policy Committee announced on 4 August 2022 that base rates will increase by 0.50% to 1.75% pa. This is the Bank’s first big move to try and curb inflation, but we suggest this has been delayed by design to devalue covid-19 debt.
Costs of Your Shopping:
If we loosely follow inflation through current 2021, 2022 levels and future projections of the Bank i.e., “expect inflation to be close to that target [2% pa] in around two years.” The cost of £100 of shopping in 2020 will be £188 in 2040 (assuming the Bank of England remains on a 2% inflation target from 2025):
|
£100 |
COST OF SHOPPING |
|
|
|
|
|
|
Year |
Inflation |
Value |
|
Year |
Inflation |
Value |
|
2021 |
5% |
£105 |
|
2031 |
2% |
£157 |
|
2022 |
13% |
£119 |
|
2032 |
2% |
£161 |
|
2023 |
10% |
£131 |
|
2033 |
2% |
£164 |
|
2024 |
5% |
£137 |
|
2034 |
2% |
£167 |
|
2025 |
2% |
£140 |
|
2035 |
2% |
£170 |
|
2026 |
2% |
£143 |
|
2036 |
2% |
£174 |
|
2027 |
2% |
£145 |
|
2037 |
2% |
£177 |
|
2028 |
2% |
£148 |
|
2038 |
2% |
£181 |
|
2029 |
2% |
£151 |
|
2039 |
2% |
£184 |
|
2030 |
2% |
£154 |
|
2040 |
2% |
£188 |
Covid-19 Debt Devalued:
The UK Government borrowed around £500 billion to pay for furlough, grants, NHS PPE, research, systems, vaccines and other assistance. By allowing inflation to climb and then bringing it back to a 2% pa target by 2025 and then holding at that level, by the time 2040 comes when the Government will likely have to start repaying these debts as 2020 Treasury Stocks mature, up to 75% of fixed rate coupon debt will have been devalued by around 50% saving the Government a fortune.
|
£100 |
GOVERNMENT BORROWING |
|
|
|
||
|
Year |
Inflation |
Value |
|
Year |
Inflation |
Value |
|
2021 |
5% |
£95 |
|
2031 |
2% |
£61 |
|
2022 |
13% |
£83 |
|
2032 |
2% |
£60 |
|
2023 |
10% |
£74 |
|
2033 |
2% |
£59 |
|
2024 |
5% |
£71 |
|
2034 |
2% |
£58 |
|
2025 |
2% |
£69 |
|
2035 |
2% |
£57 |
|
2026 |
2% |
£68 |
|
2036 |
2% |
£55 |
|
2027 |
2% |
£67 |
|
2037 |
2% |
£54 |
|
2028 |
2% |
£65 |
|
2038 |
2% |
£53 |
|
2029 |
2% |
£64 |
|
2039 |
2% |
£52 |
|
2030 |
2% |
£63 |
|
2040 |
2% |
£51 |
It is no surprise to us that the Bank of England delayed major action on inflation for a couple of years until now. The target is devaluing government debt and not necessarily trying to manage how much pain consumers will suffer with cost-of-living increases.
