The emerging disparity between interest rates and inflation is set to leave the U.K. with something of a “dilemma” on its hands, the chief executive of insurance firm Aviva has said.
Britain’s vote to leave the EU has seen sterling tumble, prompting a steady rise in inflation; however, with limited economic growth, interest rates remain at record lows.
“Normally I’d ask two questions on interest rates,” Mark Wilson told CNBC Thursday. “You’re going to ask the question on inflation and you’re going to ask the question on growth. You’re certainly going to get the first with the lower sterling and Brexit. You may not get the second.”
“If the answer to one question is yes and the answer to the other question is no, well then you have something of a dilemma on your hands. ” he added.
Inflation rose to 1.8 percent in January, up from 1.6 percent in December, according to the latest official figures. Meanwhile U.K. interest rates remain at 0.25 percent. The U.K.’s Finance Minister Phillip Hammond announced Wednesday that U.K. GDP (gross domestic product) is expected to be 2.0 percent in 2017, before falling to 1.6 percent in 2018.
Aviva is a U.K. based firm which provides around 31 million customers worldwide with insurance and investment products and is part of a sector that feels the pain when interest rates are low and the search for high-yielding assets grows ever harder. On Thursday morning, it reported a 12 percent increase in full-year operation profit to £3 billion ($3.65 billion). It said it would pay a total dividend of 23.3 pence per share for the year, up 12 percent.
UK now facing economic dilemma as prices continue to rise, says Aviva CEO – CNBC