Inflationary borrowing spike COMMENT
Inflation is going to lead to bumper levels of borrowing come mid-Spring, according to LendingMetrics’ CTO Neil Williams. It’s no secret that the UK economy has entered an era of higher inflation follow- ing a long period of very modest price growth. Over the last 20 years, prices have only edged above the two per cent mark once back in 2011, when they briefly hit 4.46%, only to quickly revert to more ‘normal’ levels. This time around, there aren’t many of us who would predict that prices will fall back quite so quickly, and that’s because we are in a very different place to that of 2011. Back then, the drivers of inflation, wage growth and product
prices, were being held firmly in check by a plentiful supply of labour, support- ed by the free movement between the UK and the rest of the EU, and a seem- ingly inexhaustible supply of cheaper manufactured goods from the Far East. Today, labour is a much more scarce resourceandsupplyconstraintsbrought about by the pandemic have resulted in steeply rising prices for goods and ser- vices. Further pressures are in the pipe- line in the form of significant higher oil prices and this is in turn feeding in to employee wage expectations. Undoubtedly, we are in for a spell of continuing inflation at, or above, the five per cent mark, in fact in a recent inter- view for the Guardian, Isabel Stockton, a research economist at the Institute for Fiscal Studies said “interest payments
on indexed linked debt were calculated using an alternative measure of infla- tion, the retail prices index which is running at 7.8%” and wider predictions have even suggested double digit infla- tion rates later this year. The money we have in our pockets is not going to go as far as it used to and our savings are set to be whittled away over time. The mainstream media will present this as a uniformly bad thing, which is largely true, especially if it leads to a wage-price spiral as it has at times in the past. But inflation is not all bad news. Like a lot of things, it does have an upside. What is often forgotten is that inflation stimulates economic activity. It acts as
12 | Metrics Monthly
Q1 | 2022
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