InflationWatch - May 2024

10 May 2024

Since the Covid-19 pandemic, inflation has risen further and for longer than most market participants expected in many countries, including the UK. Expansive monetary policy and fiscal stimulus, disruption to supply chains, and a shift in demand from services to goods during the pandemic all placed upwards pressure on inflation. The Russia-Ukraine conflict, and the global supply shock emanating from it, further exacerbated these price pressures.

In this issue of InflationWatch, you’ll find an update on the latest position on inflation, consensus forecasts on future inflation rates and our view on whether the risks to the consensus view are tilted to the upside or downside.

Highlights for the quarter include: 

  • Energy price falls and their interaction with the UK price cap, alongside goods and food price disinflation, mean year-on-year headline CPI is likely to fall below target in the coming months.
  • But with services inflation typically slowing less sharply, and wage growth remaining relatively high, there remains uncertainty over how quickly inflation will reach its target on a sustainable basis.
  • We continue to expect the Bank of England (BoE) to cut rates this year. However, given the massive overshoot of inflation in 2022 and 2023, we expect the bank to tread cautiously by reducing rates slowly to less restrictive levels.

If you want to discuss anything further, please get in touch.

InflationWatch - May 2024


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