Inflation was already a serious problem thanks to the bottlenecks in the global supply chain caused by the COVID-19 pandemic. But following Russia’s brutal invasion of Ukraine, and the effect on oil and gas prices, inflationary pressures now look a whole lot worse.
The big question is how central banks will respond. Raised inflation demands higher interest rates, but this risks compounding the global economic damage likely to be caused by the western sanctions against Russia. The Bank of England has been slightly ahead of the curve on tightening monetary policy, having raised the policy rate of interest twice in the last couple of meetings to reach 0.5% and also ending its quantitative easing (QE) programme for increasing the money supply back in December.
