To paraphrase US senator Robert Kennedy, we live in interesting times whether we like it or not.

With a change of monarch, a change of prime minister, an energy crisis, a weakening economy and rising interest rates, they are also uncertain times.

Fears about the inflationary backdrop were stoked once more by a reading of US inflation for August which came in hotter than expected, with CPI (consumer price index) up 8.3% year-on-year against the 8.1% forecast.

Perhaps of more concern was the fact core CPI (stripping out the impact of volatile food and energy prices) was up 0.6% month on month, double what had been pencilled in ahead of time.

The 75 basis points rate hike expected from the US Federal Reserve on 21 September now looks more of a certainty.

Bank of England governor Andrew Bailey recently predicted a recession could start in the final quarter of this year, after the bank raised rates by the most in 27 years in order to head off double- digit inflation. Some comfort may have been taken from UK CPI data which showed inflation slowed for the first time in a year in August to 9.9%, but prices for key items are still rising fast.

And while a slump in the UK economy might not be as deep as the 2008 financial crisis, it could last as long warned Bailey. Yet, while it clearly isn’t in rude health, the economy continues to plod along.

June’s disappointing growth in GDP (gross domestic product) was due in part to an extended bank holiday for the Queen’s Platinum Jubilee, while July’s recovery was slightly behind forecasts due to lower electricity and gas consumption as the country sweltered in 40-degree heat.

Much of governor Bailey’s concern for the economy is rooted in fears of soaring inflation due to the October hike in energy prices and a consequent collapse in confidence and spending
by businesses as well as consumers.

However, the news of a price guarantee and help for firms and households from the new administration may help.

The CEBR (Centre for Economics and Business Research) estimates that capping energy bills at £2,500 from October could reduce peak inflation by as much as 5% by early 2023.

And although average petrol prices are still around 25% higher than they were in 2021, they have been falling for the last two months which has eased some of the pressure on households, with the RAC predicting further falls to come.

In terms of growth, September will most likely be a sombre month in more ways than one with many events postponed, a more reflective bank holiday than usual and subdued trading in hospitality and in-store.

So, with both price rises and activity slowing, all eyes are on the Bank of England’s meeting next week. [IC]

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