The statement read: “The OBR have said headroom could be wiped out by relatively small changes to the economic outlook.”
Andrew Balls, chief investment officer for global fixed income at fund house Pimco, said: "The global economy and policymakers are confronted with a stagflationary supply shock that is negative for growth and will tend to push up inflation further.
"To be sure, this 'anti-Goldilocks economy' – an economy that will be both too hot in terms of inflation and too cold in terms of growth – is not part of our tentative base case forecast, which still calls for above-trend growth and a gradual easing of inflation pressures from higher peaks in developed market economies overall. However, the risks of higher inflation and lower growth or even a recession have increased."
Balls said the outlook for both growth and inflation was clouded by fragile conditions.
"Supply chain disruptions were already widespread due to Covid-19, weighing down output and pushing up costs and prices in many sectors. Russia’s war in Ukraine and the sanctions responses have led to further disruptions. Moreover, the recent Covid-related lockdowns in parts of China have the potential to create new bottlenecks in the global supply chain. The war in Ukraine will likely lead to a greater dispersion of economic and inflation outcomes among countries and regions."
He added: "Europe will be most affected, while the US economy appears relatively isolated from the direct effects of the war in Ukraine. China and most other Asian economies have smaller direct trade linkages with Russia but will likely be negatively affected by higher energy prices and slower growth in Europe. In emerging markets, exporters of commodities should benefit, though higher commodity prices will tend to increase already high inflation pressures in most EM economies."
david.thorpe@ft.com
