Pre-war inflation data brushed aside

“Pre-war inflation data brushed aside” – Chris Beauchamp, IG”

Chris Beauchamp, Chief Market Analyst at IG: “Today’s inflation data from the UK, like that from the US, comes from a different time, before Donald Trump decided to upend the global economy and spur a new wave of inflation. If the conflict isn’t resolved quickly, and oil prices keep rising, we may look back at early 2026 as a halcyon period of low price growth. Andrew Bailey will definitely feel wistful about an era when he could look forward to cutting rates rather than thinking about having to increase them.”

Commenting on UK inflation remaining at 3%, Neil Wilson, Investor Content Strategist at Saxo, said: “It’s a tricky one for the Bank of England or markets to read this inflation print. Global markets have shifted significantly in recent weeks due to the Iran war, with today’s announcement yet to reflect the full impact of the conflict on the wider economy.

Markets will have paid closer attention to the worrying PMI reports from this week that showed the steepest rise in input costs for firms since 2022; combined with growth stalling. Despite the market reacting aggressively to reprice front end rates, the BoE won’t be hiking into a temporary inflation spike. It’s made it clear it’s worried about second order effects from inflation but the conditions for wages to rise and businesses to raise prices is not there like it was in 2022. The labour market is in an entirely different situation today, with workers no longer able to rely on requesting and receiving pay hikes.

Elsewhere, businesses lack pricing power as the post-pandemic reopening surge in demand for goods and services is no longer a factor today. Further, the fiscal and monetary backdrop is entirely different now. Rates are already restrictive not at the zero lower bound. The fiscal position is more fragile, and while this supply shock is forcing up prices in the near-term, ultimately the focus needs to shift to the growth outlook and demand destruction, which will be disinflationary in the medium to longer term.”