18 December 2024
If you are covering the latest UK inflation data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
"The latest inflation data shows the headline figure ticking up from 2.3% to 2.6% year-on-year, broadly in line with expectations. However, the month-on-month rate came in at just 0.1%, a marked slowdown from the 0.6% figure seen last month when the Energy Price Cap hike pushed prices higher. This suggests the year-on-year rise is less about a resurgence in inflationary pressures and more a reflection of base effects from the previous year.
"The Bank of England has consistently warned that inflation could face upward pressure towards the end of this year before falling more sustainably in 2025, as it laps the steep fall in energy prices that occurred in mid-2023. In reality, inflation has been less pronounced than anticipated, with goods inflation remaining muted as oil prices have weakened further.
"Service inflation, however, continues to be the main challenge. But looking ahead, there are reasons to be optimistic that it can be brought under control. Labour market data indicates a softening in vacancies, with the estimated number of vacancies in the UK falling to 818,000 in September to November 2024 – a decrease of 31,000, or 3.7%, compared to the previous quarter. This trend, combined with higher National Insurance costs for employers, is expected to bring wage inflation back towards 2-3%. While slower wage growth may be unwelcome news for workers, given wages account for around 60% of costs in a typical service sector business, it will help headline inflation return closer to the Bank’s 2% target.
"If these trends persist, it could pave the way for rate cuts in the UK next year. Markets currently expect just over two 0.25% cuts by the end of 2025, a far more cautious outlook compared to the ECB, where rates are forecast to be reduced between four and five times over the same period."
