UK News US inflation runs hot as Federal Reserve eyes interest rate hikes
What to expect from next week's Bank of England meeting?
Next week's Bank of England meeting is unlikely to result in any change in monetary policy, but it will be closely watched after the Fed signalled plans to speed up interest rate hikes.It could also turn out to be an interesting meeting because it is the last one with Andy Haldane, the Bank's chief economist who, apart from having a reputation for being a 'feather ruffler', has been warning of the growing dangers from inflation for a while.
Inflation fears spread around the globe after the cost of living in the US soared last month.
Consumer prices across the pond were 5 per cent higher in May than they were a year ago, according to the US Bureau of Labor Statistics – the fastest rate in inflation for nearly 13 years.
There are now deep concerns the US economy is ‘running hot’ and that the US Federal Reserve’s interest rate-setting panel will step in next week.
The figures from the world’s largest economy came just days after data from China also showed that inflation was on the rise.
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Other parts of the country recording big jumps include Renfrewshire, Reigate & Banstead and Watford.Rossendale, Ribble Valley and Hyndburn – all parts of Lancashire – are among those areas now recording some of the highest rates in the UK.
There are now heightened calls for the Fed’s open markets committee to cut back its money-printing programme and hike interest rates.
This week the Bank of England’s chief economist Andy Haldane warned ‘this is the most dangerous moment for monetary policy since inflation-targeting was introduced into the UK in 1992’.
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And the prospect of soaring interest rates will be a hot topic among world leaders at the G7 summit, which begins today.
Robert Alster, chief investment officer at Close Brothers Asset Management, said: ‘Whether calls are heeded, and we see monetary policy levers being pulled, will depend on the next few months of data.’
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Latest data out of Beijing showed that inflation at its factories had hit the highest level since 2008, driven by price increases for oil, metals and chemicals. China is one of the world's biggest exporters and there are fears that inflation could be passed on to ordinary customers through increased prices. © Provided by This Is Money Sparks fly around a worker in a factory in Nantong, in China's eastern Jiangsu province.
The Fed had already said it was willing to let inflation run above its 2 per cent target, as it attempts to encourage a strong recovery from the pandemic.
But rising prices will stoke fears that global inflation could climb, pushing up the cost of living in other countries. Danni Hewson, a financial analyst at AJ Bell, said: ‘5 per cent exceeds expectations and the heat will no doubt spark a few uncomfortable conversations. The Fed’s consistently said it is prepared to let things run hot, but how hot is too hot?’
Some economists have remained sanguine. Daniele Antonucci, chief economist at Quintet Private Bank, said: ‘This looks mostly driven by pent-up demand combined with transitory supply bottlenecks as the US economy reopens.’
Rising energy prices have also bumped up inflation. And as manufacturing activity has picked up, the cost of raw materials has jumped. In the UK, inflation hit 1.5 per cent in April, more than doubling from 0.7 per cent in March.
Haldane is worried that inflation could soar unless the Bank of England cuts back its money-printing programme and lifts interest rates.
And Janet Yellen, the US Treasury Secretary and former chairman of the Federal Reserve, said at an event hosted by The Atlantic magazine earlier this month: ‘It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat.’
She has repeatedly said higher inflation will be temporary.
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You can always count on Nicola Coughlan to experiment with her makeup for a big event, and the BAFTA TV Awards on 6 June were no exception. The Bridgerton actor - who is nominated for Virgin Media's must-see moment award - arrived on the red carpet wearing a custom orange Valentino dress and bold, colourful makeup to match. "The dress was so vibrant and bold, I felt the makeup needed to be as brave and match the vibrancy of her dress in the eye makeup to ensure the orange didn't engulf her," London-based makeup artist Neil Young told POPSUGAR. © Getty / David M.