The Financial Times’ annual survey of economists: my answers to their questions

At the beginning of each year The Financial Times conducts a survey among UK based economists. My responses to their questions are below and you can read the original FT article here.

Will the UK outpace or lag behind other developed economies in 2022?


My forecasts echo the message from the IMF and OECD, namely that UK economic growth will exceed that of the US and euro area in 2022. Despite this, I would not use the term outpace, as I expect the UK to experience a similar growth profile to other developed economies in 2022.



To what extent will the Bank of England be in control of inflation by the end of 2022?


The Bank of England has badly misjudged the persistence of inflation in the UK. I do not expect this rise in inflation to prove permanent, but it is not passing through quickly as the Bank expects and instead is persisting. Thus, the scale of the stimulus in 2021, particularly QE, was unnecessary.


Inflation will remain elevated and exceed the Bank's 2% target throughout all of 2022 and settle above the target in 2023. In that context, it would be premature to conclude the Bank will be in control of inflation by the end of 2022. Although the initial cause of this inflation shock was outside of the Bank's control, it must be mindful of second-round effects.


That being said, annual inflation should be much lower at the end of 2022 than at its peak. I expect the annual rate of inflation to peak in the second quarter, at around 7%, and to decelerate from August onwards.


The economy faces a double whammy at the start of the year, from the consequences of Omicron and a cost-of-living crisis as inflation rises, and thus monetary policy should remain on hold in early 2022.


But as the economy rebounds and as the year progresses, I would expect the Bank to tighten policy, with interest rates returning towards 0.75%, the pre-pandemic level, by year-end. This will also trigger some quantitative tightening, with the Bank having already outlined that a higher bank rate will trigger a reduction in its stock of purchased assets. With parts of the economy vulnerable in the wake of the pandemic, tightening by the Bank needs to be gradual and predictable. 


It is not just about monetary stability in terms of curbing inflation, but the Bank's actions, including low rates and QE, are also risking financial stability.



To what extent will the UK look like a high wage, high productive economy at the end of 2022 – and will people feel better or worse off than they do now?


I would not have described the UK as a high wage, high productive economy at any time over the last quarter of a century, so it would be some achievement if that was to change during 2022. But as we emerge from the pandemic, there is a great opportunity to outline and deliver upon a pro-growth economic strategy, and it requires that to set the seeds for the high productive, high wage economy that is needed.


As to whether people will feel better or worse off, I think the answer will show significant variation, both across the economy and through the course of 2022. That is, it will likely mirror an imbalanced economy. Significant asset price inflation including higher house prices, alongside rising wages and high savings may make some people feel well off.


Overall, though, I would expect the majority of people to feel worse off, particularly during the first half of the year, because of higher inflation and rising costs. This will feed higher wages.


Please note, the value of your investments can go down as well as up.


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