Economic Perspectives –

Growth hampered by supply problems as inflationary concerns intensify

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


11th October 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:

  • Markit surveys for September suggested that growth continued in all three sectors, despite significant supply problems. Manufacturing and construction were weaker, though services industries were, perhaps surprisingly, a tad stronger than in August. Inflationary pressures remained a concern.
  • The Bank’s new Chief Economist Huw Pill sent written evidence to the Treasury Select Committee last week. He said “…in my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated”.
  • MPC member Michael Saunders, quoted in a newspaper interview, said that households must brace for “significantly earlier” interest rate rises as the Bank prepares to respond to rising inflation.
  • Ofgem’s price cap increased by 12% on 1 October and is expected to increase significantly again in April 2022, reflecting rapidly rising gas prices.
  • Oil prices have firmed significantly since mid-August reflecting increased demand as lockdown restrictions are loosened.
  • Productivity (measured by output per hour) rose by 0.1% (QOQ) in 2021Q2 as gross value added rose 5.5%, marginally more than the increase in total hours worked (5.4%).  
  • The SMMT reported that September’s new car registrations were 34.3% (YOY) lower, the weakest September since 1998, as “the ongoing shortage of semiconductors impacted vehicle availability”.
  • Halifax reported that house prices rose 1.7% (MOM) in September to be 7.4% higher YOY.
  • Insolvency Service data on redundancies for September suggested that large job cuts as the furlough scheme closed had not, so far, materialised.

Other news:

  • The IMF released the chapter on inflation for their October World Economic Outlook, in which they judged that long-term inflation expectations remain anchored.
  • The US Senate approved legislation on 7 October to raise the federal government’s debt limit (debt ceiling) in order to avoid the risk of default in mid-October.

Ruth Lea said “Comments by both Huw Pill, the Bank’s Chief Economist, and MPC member Michael Saunders suggest that the Bank’s concerns over the higher-than-expected inflation are intensifying. Indeed, Michael Saunders went so far as to say households must prepare for earlier than expected interest rate rises, adding ‘markets have priced in over the last few months an earlier rise in Bank Rate than previously and I think that’s appropriate’. As supply shortages and rising energy prices drive inflation higher, the risk is that wages rise without offsetting productivity increases and higher inflationary pressures become embedded”. 





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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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