inflation base effects that were caused by very weak activity and prices this time last year which because they are annual and a matter of arithmetic do not last beyond a year but while they are there, they push up inflation. secondly, we can see, as i havejust said, additional price pressures from various shortages caused by the temporary imbalance in the recovery of supply and demand. sometimes as demand recovers more rapidly as supply. but there is good reasons to think this will not last. thirdly, we think and expect there will be a switch from goods to wild services as the restrictions are lifted because the restrictions are lifted because the restrictions have had massive effects on some parts of the services sector, so that should lead to a rebalancing of the composition of demand and the economy and over
demand will recover in single or not. we will come back to the mansion has when the chancellor rishi sunak begins his speech and we expect that to happen pretty soon. let s bring you other main news whilst we wait for that. the clothing retailer, gap, has announced it s closing all 81 of its stores in the uk and ireland and will trade only online. the company has not disclosed how many employees the closures will affect, but will shortly start a consultation process with the staff. ben boulos reports on what s behind the decision. this is part of the problem. heavy discounting is something that gap has relied on to get customers spending money at its stores even before the pandemic. so when lockdown hit and the stores had to close, it was already in a rather weak position. this, its flagship store on oxford street in london, and the other 80 around the uk and ireland, will close by the end of september. it will become an online only retailer here. reflecting a very definite trend in
uneven recovery. hairdressing and personal grooming inflation was strong. you can put that down to pent up demand, essential need, we can probably recognise that. or down to recreating the early 1990s david beckham luck. i believe you tojudge that. further up the supply chain we have seen higher food that. further up the supply chain we have seen higherfood input prices,. again it is not a universal pattern. i can tell you that victoria beckham is reducing the average selling price of her dress is by 40%. so it is not at all even the moment. why do we think these effects could be temporary? firstly, there are annual
slightly out of sync. wear it outstrips that, it is entirely possible we will win as excess demands bottlenecks because that is a reflection of the uneven nature of the recovery. in a normal recovery, signs that cost pressures were increasing and firms were experiencing capacity constraints would be a warning signal that demand was returning close to potential supply, demand was returning close to potentialsupply, but demand was returning close to potential supply, but it is not necessarily the case now because we expect both demand and supply to continue to recover towards their pre pandemic levels. consistent with that, we are seeing we bounce and normalisation of some commodity prices and there are plenty of the stories of supply chain constraints and transport bottlenecks. but much should be temporary. there are
there is such a thing, there is a hit to demand to the capacity of the economy, higher unemployment and weaker inflation. of because during the covid crisis we saw a simultaneous and substantial file but also in demand and supply. all of the indications are that decline in both demand and supply will be temporary and we are already seeing that change. the evidence here and in other countries shows the economic impact of covid has attenuated over time with each successive wave. the economic policy response has been designed to ensure the longer term damage will be as small as it can be. and this is involved with monetary and physical net fiscal policy with their own objectives in a consistent manner.