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Aegon AM: Wages key to growth and inflation puzzle for BoE

James Lynch, fixed income investment manager, Aegon Asset Management

James Lynch, fixed income investment manager at Aegon Asset Management, comments on the latest UK GDP figures.

James Lynch said:

“The economic performance of the UK in 2021 bundled into one nice, neat number is 7.5% and the inevitable records that have been broken will take the headlines, but the comparison to 2020 was quite an easy comp to beat.

“The final figures for the year actually meant GDP staggered over the finishing line slowing down -0.2% month-on-month from November into December – albeit better than economists expected at -0.5%. It was actually the Covid money being spent on Test and Trace and vaccinations that gave it a boost.

“These figures however are backward looking and what really matters is where we go from here in 2022, we have a tailwind of Covid restrictions being removed in the UK, along with record job vacancies waiting to be filled and still some household savings sloshing around waiting to be spent.

“But the headwinds on the consumer are not insignificant with the cost-of-living crisis on the horizon. For the BoE the labour market will be key here and whether wages are going to follow the inflation numbers higher in 2022.”

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