Inflation means a tough 2023 – but this isn’t the 1970s all over again

Last week, the world’s central banks showed they were frightened – and as long as they are frightened, the rest of us can relax a bit, writes Hamish McRae

If people can earn good money they will spend it, which in turn supports overall growth (Getty)

Well, last week did indeed turn out to be a disturbing time for the world economy. A number of central banks, including the Federal Reserve and the Bank of England, increased interest rates as predicted. But what was not foreseen was the market reaction.

Shares in the US initially shot up on the Fed’s action, then plunged, leaving the S&P 500 index slightly down on the week. In the UK, while the increase in rates was expected, the message of the Bank of England that inflation might exceed 10 per cent this autumn and that the economy was in danger of recession, was not. Both shares and the pound fell sharply.

But this is not just about interest rates and inflation. There are other headwinds, including of course disruption from the war in Ukraine, and also the struggle China is still having to contain the pandemic. Shanghai, its largest city and port, remains locked down, with knock-on effects on global supply chains.