UK headline inflation could be 7% in June

Commenting on the upcoming UK inflation data, Catherine Neese, Vice President of Global Economics and Chief European Economist, PGIM Fixed Income:

Upcoming UK inflation data will be a key indicator for the Bank of England at its next meeting. However, they may not be enough to prevent the central bank from raising rates by another 50 basis points at its August meeting. Unlike the US and the Eurozone, core inflation in the UK has picked up again in recent months and will be around 7% in June.

Additionally, the most recent wage settlement in the public sector will also continue to reflect higher inflation. UK GDP figures for May showed a slight decline, but followed April figures (+0.2%). From this it can be concluded that the overall growth has stagnated but not declined in the second quarter. Taking into account additional public holidays and strikes, the May numbers were lower than feared.

According to the latest data, we expect the Bank of England to focus on tightening credit conditions to cool the economy and bring inflation back to target. However, as in other European countries, output in the manufacturing and construction sectors is declining.

However, if the economic slowdown continues or accelerates, a rate hike of 50 basis points after the August meeting is unlikely.

UK headline inflation could be 7% in June

Photo by Catherine Niece (source: PGIM Fixed Income)

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