The FTSE 100 started Wednesday on the back foot as investors got a big reminder that while all the focus has been on the latest twist in the Covid-19 pandemic, inflation risks haven’t gone away.
The squeeze on the cost of living is just getting worse as consumer prices jumped 5.1% in November, the highest annual increase in a decade, putting renewed pressure on the Bank of England to take action.
It seems unlikely the Bank will move on rates tomorrow as the UK looks ahead to a potentially substantial wave of Omicron cases. However, today’s data suggests Andrew Bailey and his colleagues don’t have the luxury of too much time to see how the new variant affects the economy. If they don’t act before Christmas, they have may little choice at their first meeting of 2022 at the beginning of February.
“Their big fear is this will be too late or to quote a one-time German central banker on inflation, once the toothpaste is out of the tube you can’t get it back in again,” says AJ Bell investment director Russ Mould.
“Ahead of the big meeting at Threadneedle Street this Thursday lunchtime, the US Federal Reserve is set to meet overnight with a focus on whether it will move now on tapering financial support for the economy. All in all there’s plenty for investors to fret about at present.”