18 January 2023
If you are covering the latest UK inflation data, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“It appears the peak of this inflation conundrum was reached in October as the data shows price rises have moderated a little. However, for those hoping that inflation would simply just fall out of the system quickly, that is a scenario that is unlikely to come to fruition. Energy prices may be coming down, with petrol at the pump at a much more palatable level than it was before, but services are now driving inflation as companies have had to increase wages just to get staff on their books. We can see in the latest data yesterday that wages are having to climb as people merely try to keep up with inflation, let alone beat it. Combining those cost pressures with the effect that energy prices have had and you have a cocktail for sticky inflation that refuses to budge quickly. It is this that the Bank of England will be fretting about when it comes to how much to raise interest rates at their next meeting. If there are no signs of services inflation cooling off, then we should expect the aggressive strategy from the BoE to remain in place.
“That said, cracks did start to appear in the BoE’s united front at the last rate rise, with six of the nine committee members opting to raise rates by 0.5 percentage points. As we seem to be at a crossroads with inflation, the future rhetoric coming out of the BoE is going to be crucial for markets and investors. While recession is predicted, the UK economy did surprise with a positive GDP reading in November. It could be, therefore, that things are not quite as bad on the economic front as previously feared and that the BoE will keep their foot on the gas. If inflation does not start to fall a little quicker than it is, then any chance of a reversal in monetary policy becomes increasingly unlikely by the day.”
