20:09 GMT07 July 2020
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    Britain’s inflation rate unexpectedly overshot the Bank of England’s 2% target raising the cost of living even before sterling’s slide has had much chance to feed into consumer prices. With more on this story, Sputnik spoke to Johan Rewilak from the Aston Business School at Aston University, in this interview.

    Sputnik: Britain’s inflation rate unexpectedly overshot the Bank of England’s 2% target on raising the cost of living even before sterling’s slide has had much chance to feed into consumer prices. How significant is this?

    Johan Rewilak: Well it's actually quite worrying for consumerism in particular especially as the pound sterling has been weakening in tandem with raising prices up. Part of the rise and the fall in Sterling and the rise in the reflation of other currencies have actually led to imports becoming more expensive and pushing prices up, which actually is damaging to the consumer because if it carries on we will be out of pocket a lot more.

    Sputnik: With inflation rising and so to prices for consumers, just how much more are Britons having to pay for their goods and services now before?

    Johan Rewilak: There are two types of goods: there's your necessities such as your breads, your milks and your cheese and if prices rise there they'll harm consumers a lot more than if prices rise because they're luxury goods. Let assume that Louis Vuitton handbag increased in price you might decide to substitute away from that product whereas when the price of milk rises it's very difficult to substitute away from milk for an alternative product to substitute or replace the milk.

    One of the most worrying things is typically the Bank of England raises interest rates to try and control inflation minimise it but at the current moment especially with the yield curve becoming inverted recently the Bank of England is in a real catch 22 situation where it probably cannot raise interest rates with the impending recession coming. So I can assume that prices will be rising a lot more future as well.

    Sputnik: With Brexit, the talks of a US trade deal and also global political events such as Iran and Huawei debacle; what economic policies should we be seeing?

    Johan Rewilak: Well, one major factor is that some of these aspects such as the US and China trade war, the Bank of England can't do any much about that. One reason why the US dollars become so strong recently is due to this trade war, so the US dollar is a prestated against sterling which also prestated against other currencies as well. One real big problem with the US dollar is that it's a vehicle currency so major commodities such as oil are priced in US dollars. Mark Carney is really at the mercy of this trade war and other political events in the world because they can actually influence them. So they have to make do with the postings they have available for the UK economy.

    The views and opinions expressed by the speaker do not necessarily reflect those of Sputnik.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

    Tags:
    consumer prices, pound, Brexit, U.K
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