Barclays Compares UK Economic Conditions to Past Energy Shocks

Investing.com -- Barclays has developed a heat map analysis comparing current UK economic indicators to previous significant shocks, suggesting that second-round effects from the ongoing energy price shock will more closely resemble the 2011 scenario rather than 2022.

The bank noted that the economic backdrop of the current energy price shock will influence how it spreads through the economy and how long it persists. Debate continues over whether the present situation mirrors 2011 or 2022, with 2011 seeing limited second-round effects while 2022 experienced a more persistent inflationary impact.

Barclays adapted recent work by the European Central Bank for the UK market, creating a heat map that offers a new framework for examining this question. The analysis presents key economic measures of supply and demand conditions that will affect the inflation response.

The bank standardized each measure using z-scores compared with each series long-term mean. The measures are plotted based on their relative z-score in each period, with green representing periods of above average conditions and blue showing below average. Some series are inverted so that green indicates periods when the effect will be directionally positive on inflation and inflation persistence, while blue shows the opposite.

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