‘the worst is yet to come’

The blue-chip FTSE 100 index is in the red on Wednesday after the U.K. Office for National Statistics said inflation climbed significantly to a new forty-year high of 10.1% in July.

Vanguard economist reacts to the CPI print

In comparison, the Reuters estimate was for a narrower 9.80% year-over-year increase. Still, Shaan Raithatha (Senior Economist at Vanguard) warns the consumer prices have not peaked yet. On CNBC’s “Squawk Box Europe”, he said:

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The worst is yet to come. With the energy price cap lifting again, inflation will probably exceed 12% or 13% in October. Data suggests price pressures are now broad-based. Services inflation continues to accelerate and it’s stickier part of inflation.

Core inflation, excluding food and energy, was up 6.2% in July versus a 5.9% increase expected. In the prior month, headline and core readings were at 9.4% and 5.8%, respectively.

What to expect from the central bank in September?

Earlier this month, the Bank of England announced its biggest rate hike (50 basis points) since 1995 and the CPI print this morning Raithatha added, suggests a similar one is coming in September.

This poses a challenge for the Bank of England, in an environment where forward looking indicators suggest a sharp slowdown in growth in the months ahead as cost-of-living crisis intensifies. In our view, the bank now has to do 50 bps at its next meeting.

BOE warns the United Kingdom will slide into a recession in the final quarter of 2022 – one that will last the longest since the global financial crisis. It has raised rates in each of its previous six meetings.