Stagflation - How labour shortages are causing rising prices and interest rates

With the latest labour market data today, it seems self-evident that monetary policy is going to be tightened again, meaning higher interest rates going forward and bad news for mortgage borrowers going forward. And if it's bad news for them, it's bad news for consumer spending, and, by definition, the wider UK economy too.

This short Sky News video looks at the cost pressures facing restaurants in the UK.

Another report looking at the impact of long-term sickness on the UK labour force highlights the fact that there are now 2.6 million people not working due to health issues, and all of this comes at a time when unemployment is only 3.8%. No wonder that wage growth is still strong, albeit lagging behind inflation.

However, more importantly, you might want to think how this would be modelled using AD-AS analysis and the implications of this for macroeconomic objectives.

Please read: Pay rise surprise leads to forecasts of higher interest rates