Investment bank Citi has a piece of good news for Britain. It has been predicted that there is a possibility of the inflation level falling below 2% in Britain. As to when it will happen, the prediction is for the end of the year 2023. Citi bank says that the Consumer Price Index (CPI) is expected to fall to 2.3% in November this year. The Bank of England predicted a 4% inflation rate in the fourth quarter of the year. Investec- A fund manager has estimated UK’s inflation rate in December 2023 to fall to 1.6%.
In January 2023, the inflation rate in the UK was 10.10% and it remained in double digits since the July of 2022, the only exception was in August 2022 when inflation was 9.9%. The jump in inflation rates was primarily because of skyrocketing increases in food and energy prices. Gas prices now are dwindling and so is the Consumer Price Index, altogether paving way for a reduction in inflation rates and thus having a positive impact on the public finances of the UK.
IMPLICATIONS OF FALLING INFLATION
First, let’s talk about how this prediction is likely to have a positive political impact. General elections are scheduled in the upcoming year 2024 in Britain. A boost in public finances will go in the favor of the current regime. The Prime Minister of the UK would be in a better position to redress strikes in the public sector over the issue of increasing pay. Rishi Sunak’s vow to half the inflation rate as the year comes to an end, now does not seem to be far-flung. The second important impact could be on the households. It is anticipated that if inflation predictions turn into a reality, then there would be a recuperation in the living standards of the UK’s people. The third and perhaps the most positive impact would be the slashing of interest rates by the Bank of England. Benjamin Nabarro, Citi Bank’s chief economist, has asserted that inflation rates are falling at a much faster pace than what was anticipated at the commencement of the present year. Benjamin further also says that by July of this year, the inflation rate could dwindle to as low as 5% and such an inflation rate would vividly indicate a dampening of pricing pressures.
ASSUMPTIONS OPERATING BEHIND THE ANTICIPATION
It is pertinent to mention here that certain assumptions must be fulfilled to bring down the inflation rates. These assumptions are briefly explained by the chief economic adviser to EY Item Club, Martin Beck. According to him, the current significant fall in wholesale energy prices is necessary to be indicated in the household bills. Prices of products in markets are assumed to fall due to falling shipping prices. Another assumption is that there is no further deterioration in the Russia-Ukraine war, which is bound to escalate pressure on gas and energy supplies, thereby again fueling energy prices. He also explains that once China eases covid restrictions, the Chinese demand for energy and other products could again push the prices upward, thereby decreasing the speed at which inflation falls.
HOW INFLATION IMPACTED THE LIVES OF BRITONS
There has been a sharp fueling of the cost of living in Britain. The affordability of several goods and services is adversely impacted. Data suggests that prices of food necessities in Britain like milk and milk products, olive oil, and, eggs increased at an unprecedented level.
Consequently, many households in Britain are unable to provide wholesome food to their children owing to which recently London’s mayor announced a scheme to provide free of cost meals to school-going children. Such a scheme seems to be inspired by the Indian mid-day meals scheme. Salaries and wages for many in Britain are not going proportional to the souring inflation rates.
Britain presently is facing inflation which is at a forty-year high. Though the fresh forecasts of falling inflation bring a little sigh of relief, it has to be understood that a fall in inflation does not always imply a fall in prices. It indicates that the rise in prices would be slowed down. Covid and Russia-Ukraine war have not only impacted Britain but other countries too. Financial and economic experts feel that the inflation peak has already arrived and they are optimistic about the situation getting better now.