Inflation is declining but will it ease wage growth?

by Meg Bratley

With tomorrow being the release of the UK inflation data Isabel Albarran, Investment Officer at Close Brothers Asset Management has shared thoughts and views on the predicted data. These views can be seen below:

In April 2022, the Ofgem energy price cap rose by 54%, so we expect to see a significant decline in tomorrow’s inflation data as this falls out of the annual calculation. This will be a relief for households, businesses, and the Bank of England. Looking forward, energy prices are expected to decline further, and forecasts of UK GDP growth have been revised significantly higher. There are still upside risks, but for now, it feels like we’re moving away from the legacy issues.

“As inflation slows, observers will be closely watching the labour market for signs of further weakening. Looking to recent labour data, the Bank of England has changed its assumption on how businesses will respond to weakening economic conditions, assuming more labour hoarding to maintain talent and avoid shortages. This could keep the labour market stronger for longer. While we expect wage growth to fall as inflation eases, there is also a chance that strong wage growth is more persistent, as workers look to repair their balance sheets.”

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