On the eve of the Bank of England (BoE) announcing its latest interest rate policies, some experts feel it is a futile endeavour at trying to bring down inflation.
Katharine Neiss, chief European economist at PGIM Fixed Income, said that the UK is being hit with a double whammy of "the worst of both the euro area and US inflation drivers". The combination of inflation being pushed up by energy price shocks against a backdrop of an overheating labour market is "unsurprisingly, jangling nerves at the BoE."
UK inflation hit a 30-year high of 7% earlier this year and the Office for Budget Responsibility (OBR) now believes that CPI (consumer price index) could hit 9% by the end of the year, eroding UK consumers' purchasing power.
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In an effort to control this, the BoE has already embarked on a policy of raising interest rates and is expected to announce its fourth hike today, with Neiss expecting a 25bp hike.
But regardless of what route the BoE takes, Neiss said "there is a limit to what the central bank can achieve".
Ultimately, there are several factors driving inflation which the central bank cannot control, such as the aforementioned supply chain issues, which began back in 2016 with Brexit and were then worsened by the Covid-19 lockdowns and more recently the outbreak of war in Ukraine.
The Russia-Ukraine conflict has disrupted the global supply chains of several major resources, such as energy, oil and wheat, which have all contributed to soaring energy and food prices.
Several years of this issue has had a fundamental impact on economic growth, which the central bank can only do so much about arguably.
As Neiss said: "No setting of a bank rate can undo these shocks."
Jim Leaviss, manager of M&G Global Macro Bond, highlighted this issue as far as December, when he said that raising interest rates won't help supply chain blockages, which at the time were the main drivers to inflation.
Neiss and Leaviss are not alone in this stance. Ben Yearsley, co-founder of Fairview Investing, said there was "absolutely nothing central banks can currently do to impact inflation".
He said it was now a case of "credibility" for central bankers fulfilling their agendas after being criticised several times last year for not following through on their projections.
"Inflation is embedded and unless they want to raise rates to 5% plus they aren't in control," he said.
"Arguably bond markets have already done the heavy lifting as US 10-year is now close to 3%."
To get a handle on rising inflation, Neiss said that fiscal support needs to be "front and centre and do the heavy lifting to generate an offsetting positive supply shock," but the UK appeared weaker on this front.
She said: "The UK stands out among its peers for fiscal retrenchment at this fragile time. This puts more pressure on the central bank.
"That said, accommodative monetary policy is a poor substitute for the lack of fiscal support for stretched households and businesses, so ultimately, we expect rate rises to be capped at levels just above 1%."