Many will know we have been talking up the risks for inflation since the start of the pandemic in Spring 2021.
Our inflation message over the last 18 months has consistently been that the amount of money borrowed by various governments is unaffordable and the only way they will be able to repay it is to devalue the debt with sustained inflation over a period. Despite the ‘smoke and mirrors’ of interest rate increase threats to slow inflation down, the reality is that interest rates may only be stepped up marginally over the coming years as economies need stimulation in a post-covid world and both central banks and governments juggling with inflation pressures,
Smoke and Mirrors - Interest Rate Forecasts
We suggest there will be no interest rate increase by the Bank of England in December 2021 as we await the results of the Omicron strain spreading and current vaccine efficacy against it. We believe interest rates will likely increase twice in the first half of 2022. That said, this will still only take us up to say 0.25%pa and then 0.50% pa. This will not be enough to curb inflation.
What is Driving Inflation?
Workforce shortages mean:
Low Interest Rates and Omicron:
All of the above means greater tax revenue for HMRC. More will be paid in taxes on income, gains, stamp duty, inheritance and business taxes. This is a quandary for government as they will no doubt like devaluing debt and ever higher tax revenue but they equally know that long term inflation is not good for the economy.