The surprise rise in CPI inflation in July highlights that the effects of the pandemic will not only be deflationary. The hit to supply from the pandemic combined with shifting spending patterns may push up inflation in some areas. Ultimately, though, there is still a large margin of slack in the economy and unemployment will surge when the furlough scheme ends. The resulting hit to the buoyancy of the job market, household incomes and demand will be the predominant driver of inflation over the next two years, keeping it below the 2% target and forcing the Bank of England to expand its QE program further.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services