Today’s uptick in inflation tells us more about the energy market than it does about the underlying health of the UK economy. The jump in the headline rate was driven almost entirely by the 13% increase in Ofgem’s price cap and the broader energy spike tied to the Iran war, rather than any genuine re-acceleration in price pressures. Strip that out, and the picture looks considerably more benign: food inflation eased again and services inflation – the metric the MPC watches most closely – actually cooled last month.
The labour market backdrop reinforces the disinflationary story. Job vacancies are falling, payrolls continue to shrink, and wage growth is cooling, with unemployment stuck at around 5%.
That kind of slack leaves little scope for the energy shock to bleed into second-round effects via wages, which is ultimately what would worry the Bank of England most.
Put simply, there is nothing in today’s data that should spook the MPC into contemplating a rate hike. We expect the bank to look through this print as a one-off, energy-driven bump and to keep rates on hold for the remainder of the year, assuming – and this remains the key swing factor – there’s no fresh escalation in the Middle East that pushes oil prices meaningfully higher again.”
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