The energy sapping struggle to bring inflation under control

City comment : The dust has barely settled on the Bank of England’s half point rise on Thursday and already public opinion is being softened up for another turn of the screw. Speaking this morning in Budapest MPC member Catherine L Mann cautioned that the next decision on rates “is still more likely” to be a rise than a cut - or even a pause. The Chinese leadership’s huge pivot on opening up the world’s second biggest economy, and rapidly falling energy prices in Europe have unleashed powerful forces that will hard to control when the pent up demand feeds through to prices. Remarkably strong US payroll figures on Friday also added to the sense of a runaway train remorselessly gathering momentum.

We will find out this week whether the UK avoided recession in the second half of last year when the GDP figure for December is published. November’s number was far stronger than expected and I suspect December will follow suit. There is no sign that labour shortages are easing significantly and the Government will find it an energy sapping struggle to hold the line on public sector pay. It is all pointing to inflation staying higher, longer than the current consensus. Andrew Bailey hinted last month that he expects rates to peak at 4.5%, and that may well turn out to be the case. But as winter turns to spring and summer I would expect there to be far less talk of recession and a lot more about the great rebound and all the additional economic headaches that brings with it.