Recent UK inflation: an application of the Bernanke-Blanchard model
File(s)
Author(s)
Haskel, Jonathan
Martin, Josh
Brandt, Lennart
Type
Working Paper
Abstract
We apply the Bernanke and Blanchard (2023) model of inflation to UK quarterly data from 1990 to 2023. The model explains wage growth, price inflation, and inflation expectations (short- and long-run) as functions of labour market tightness, shocks to energy and food prices,
shortages, and productivity. Labour market tightness is measured by the vacancies-to-unemployment (V/U) ratio. The estimated equations are similar to those for the US, although the UK appears to have stickier wage and price inflation, and more persistent effects of food price shocks. UK inflation in 2021 is explained by shortages and energy price shocks, and in 2022 and 2023 also by food price shocks and labour market tightness. Inflation expectations
have been more well-anchored than predicted by the model. Conditional projections suggest UK inflation will fall sharply in 2023 from disinflationary energy and food price effects, but the decline will slow markedly thereafter.
shortages, and productivity. Labour market tightness is measured by the vacancies-to-unemployment (V/U) ratio. The estimated equations are similar to those for the US, although the UK appears to have stickier wage and price inflation, and more persistent effects of food price shocks. UK inflation in 2021 is explained by shortages and energy price shocks, and in 2022 and 2023 also by food price shocks and labour market tightness. Inflation expectations
have been more well-anchored than predicted by the model. Conditional projections suggest UK inflation will fall sharply in 2023 from disinflationary energy and food price effects, but the decline will slow markedly thereafter.
Date Issued
2023-11-27
Date Acceptance
2024-12-10
Citation
2023
Journal / Book Title
Bank of England Discussion Paper, 1-62
Copyright Statement
© 2023 The Author(s)
Publication Status
Unpublished