Isabel Albarran, Investment Officer at Close Brothers Asset Management comments ahead of tomorrow’s UK inflation data.
UK Inflation anticipation amidst cooling labour market
“After nine months of declines, the rate of inflation probably accelerated modestly in August. Oil prices have been a bit stronger of late and the easy wins presented by base effects are mostly behind us. Nonetheless, inflation is still likely to fall lower this year, with the UK economy continuing to show signs of slowing. This was evident in the last set of PMIs, which showed not just a soft manufacturing print, but also a big drop in the services sector. Businesses report continued wage pressure, but now find it more difficult to pass costs onto customers, given the weaker demand environment.
“Wage inflation certainly remains strong, though the data is flattered by an outsized increase in public sector bonuses following an agreement with unions. With fewer job openings, weaker hiring intentions, and higher unemployment, it’s clear the labour market is easing. As inflation comes down, and the labour market continues to cool, we expect to see wage growth start to slow.
“We expect to see the Bank of England hike rates by a further 25 basis points this week, as inflation remains higher than is comfortable, but we are expecting guidance from the Monetary Policy Committee to take a more dovish tone.”