UK Inflation Looks Locked In Place

UK Inflation Looks Locked In Place
Daniel Johnston

8 months ago2 mins

What’s going on here?

Data out on Wednesday showed the UK’s far from being set free from its troubled relationship with inflation.

What does this mean?

The good news: the Bank of England (BoE) previously signaled it might pause economy-curbing interest rate hikes if inflation calms down. The bad news: those pressures show no signs of letting up. Instead, the price of goods and services in the UK rose 10.1% last month from the same time last year – a slight dip from February’s 10.4%, true, but higher than the 9.8% economists expected. That has a lot to do with food and non-alcoholic drinks marking their sharpest price rises in 45 years, canceling out lower prices at the pump. So sure, the BoE might be full of good intentions, but now’s probably not the time to match bark with bite.

UK inflation

Why should I care?

For markets: Check the cheques.

There’s another reason for the BoE to be cautious. Data out earlier this week showed UK wages rose way more than expected in the three months through to February. And since wages are a key driver of inflation, that – and Wednesday’s data – might be why traders are now pricing in two more 0.25 percentage point hikes in May and June, and bracing for peak interest rates of over 5%. Plus, with high prices already pushing more folks back into work, it seems there’s no relief in sight for British households.

UK wages

The bigger picture: Bad luck, Brits.

US and European inflation have taken a breather lately, but the UK’s painful prices aren’t pausing for a second. That’s at least partly down to the “B” word: a think tank study shows there are nearly half a million fewer workers in the UK than before Brexit, in turn forcing companies to up their wages to reel in staff – not to mention the longer delivery times and inflation-driving higher import costs that came with so-called independence.

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