While many, including Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions, say the UK inflation rate will remain higher than that of peer countries as a result of reduced immigration resulting from Brexit, Lyons disputes this, saying many other European countries are also experiencing labour shortages in similar sectors as the UK.
Hugh Gimber, global market strategist at JPMorgan Asset Management, says the answer may lie in the participation rate within the economy.
This is the proportion of the population aged between school-leaving and retirement age that are either employed or seeking employment.
While those things vary across different economies, as retirement and school-leaving ages vary, Gimber notes that while this rate fell everywhere during the pandemic, in most of the economies that are peers of the UK, this figure has reverted close to pre-pandemic levels, but not so in the UK.
He says this may be a consequence of a large number of people awaiting medical treatment and so not working.
What that means for the economy, he says, is that inflation is likely to remain higher in the UK than some other countries as a consequence of this.
Gimber notes the economy has so far performed ahead of expectations, partly as a result of far more households being on fixed rate mortgages and so not having seen their payment increase, at the same time as wages have risen.
He adds: “We had a look at the data around the impact of higher interest rates on mortgages versus the higher interest paid on cash savings. And what we found is that so far, because only around 15 per cent are on variable rate mortgages, higher interest rates have benefitted the economy.
"But of course that benefit wears off as people on fixed rates have to remortgage, and that’s when the negative impact happens."
Gimber says that historically far more British households had variable rate mortgages and so the impact of higher rates was felt far sooner.
One of the impacts on the economy of this scenario, whereby savers benefit but borrowers lose out, is the distribution of the gains.
Savers are likely to be both wealthier and older than borrowers, and so are less likely to spend the gains in the real economy, reducing the positive impact of the gains on the real economy.
He adds that many companies also used the advent of historically low interest rates to take on long-term debt, and so the normal cycle of companies suffering and some going out of business as higher debt costs take their toll has yet to happen.
