Maurice Pomery, veteran trader and founder of Strategic Alpha, says that a shortage of labor in the UK combined with the Bank of England’s slow response to tackle inflation, could see UK inflation remaining high for a long time. Pomery shared his views during a recent interview with high-growth trading platform, Capital.com.
Entrenched Inflation In The UK
“I think we need to take it back to Brexit, really. The fact that we’ve had this labor shortage has been quite a major drag on the economy, pushing wages higher. We have a shortage of workers. There’s no two ways about it.
But the issue for me is that the Bank of England has also been rather late to react. They’ve been relying on pretty poor forecasting levels [and] they’ve not performed particularly well. Brexit, pushing up wages, has more impact on the UK because the UK has very low productivity levels. When you get low productivity levels, any wage hikes feed much more quickly into inflation.
PMI services data is still above 50, which is that cut-off level between contraction and expansion. I think as long as that holds, then there’s a danger that we see higher rate hikes because wages are not coming off. There’s still some big [ industrial action] strikes out there asking for quite considerable rises as well.
I think the private sector and the public sector are going to see wages continue to rise. [Meanwhile] rents are starting to go up because people are worried about house prices and increased mortgages.
I think that puts the Bank of England slap in the middle of a stagflation crisis, which is one of the toughest things for any central bank to deal with […] But there is also a slowdown in the global economy, which obviously at some point is going to affect the UK as well. So, is inflation ingrained? I think it’s dangerously close to being so,” Pomery said in an interview with Capital.com.
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