UK inflation spikes to highest level in nine years

September 20, 2021

In our weekly Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Inflation in the United Kingdom jumped to 3.2% in August - reaching its highest level in more than nine years.

The Office for National Statistics said that much of the spike was due to a substantial drop in restaurant and café prices last year and meaningful increases this year. Because the inflation rate came in well above the Bank of England’s target, Governor Andrew Bailey must write a letter to the finance minister explaining how the central bank plans to bring it back in line.

Meanwhile, UK company payrolls rose by a record 241,000 in August while the unemployment rate fell to 4.6% in the three months to the end of July. Retail sales unexpectedly fell for a fourth month, contracting 0.9% versus July. Economists had forecast growth of 0.5%.

In the United States, the Labor Department reported that core consumer prices increased 0.1% in August, below consensus expectations for a 0.3% increase and the smallest gain since February. Declines in airfares and used car prices drove much of the shortfall. On Thursday, the Commerce Department reported that August retail sales outside the volatile auto sector jumped 1.8%, defying consensus expectations for a small decline.

Confidence levels among Japanese manufacturers fell to a five-month low in September. Weakness was attributed to the latest coronavirus wave with activities and broader demand impeded by the health crisis, while carmakers reported the deepening impact of a global chip shortage. Some manufacturers have also had to contend with higher raw material prices.

Separate data showed that Japan’s exports rose 26.2% year-on-year in August, less than expected and following a 37.0% gain in the previous month. The spread of the highly contagious Delta variant of COVID-19 in Asia and supply chain blockages impeding auto shipments both constrained export growth. While shipments of cars fell, exports of iron, steel, chip making equipment and automotive parts led gains over the month.

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