Resume af teksten:
Britisk inflation kan nå 3,5% i år, hvis energipriserne forbliver høje ind i andet kvartal. Muligheden for en rentesænkning fra Bank of England i marts er mindsket til 20%, fra tidligere 80%, pga. geopolitiske spændinger. Vi forventer nu en rentenedsættelse i april, med mulighed for ændringer hvis situationen i Mellemøsten stabiliseres hurtigt. Svage arbejdsmarkedsforhold fortsætter med at lade op for yderligere lempelser. Bank of England har tidligere reageret stærkt på maxinflation drevet af forsyningssiden, særligt hvis energipriserne stiger. Der er en svagere jobsmarkedsdynamik nu i forhold til 2022, hvilket kan dæmpe lønvækst. Regeringstiltag som midlertidige skattelettelser kunne afbøde effekterne af stigende energipriser, men finansministeriets manøvremuligheder er begrænsede af eksisterende finanspolitiske regler.
Fra ING:
UK inflation could peak at 3.5% this year if energy prices stay around current levels into the second quarter. We now expect the next Bank of England cut in April, though March is still a distinct possibility if Middle Eastern tensions rapidly de-escalate. With the jobs market still under pressure, further easing is still more likely than not
We’re pushing back our call for the next Bank of England cut to April, though we wouldn’t rule out a cut this month
Inflation could test 3.5% if energy prices stay elevated into Q2
Investors have slashed expectations for a March rate cut from the Bank of England; markets are pricing it with just a 20% probability, down from 80% pre-conflict.
We are pushing back our call for the next cut to April, though we wouldn’t rule out a move this month. Remember, those who have voted for rate cuts at recent meetings have done so because the labour market is getting weaker. That hasn’t changed.
Still, the Bank of England has shown itself to be particularly sensitive to supply-driven spikes in headline inflation, more so than the Federal Reserve or the European Central Bank. Last summer’s hawkish response to higher food prices made that abundantly clear. Chief Economist Huw Pill has often cited 3.5-4% as a level for headline CPI which, if reached, is statistically much more likely to morph into a longer-lasting bout of price pressure.
That threshold could easily be tested if natural gas prices stay at or above 120p/therm – equivalent to 50 EUR/MWh on the Dutch TTF benchmark – into Q2 and if oil prices persistently flirt with 85-90 USD/bbl. Headline inflation would peak at 3.5% in late-summer. And that’s before considering the secondary impact on food and services inflation. A more extreme scenario where oil prices go to 110 USD/bbl and European gas prices rise persistently above 65 EUR/MWh could push headline inflation temporarily close to 5%.
We estimate every 10% rise in oil prices adds 0.1ppt to headline inflation. Every 10% rise in gas prices is worth 0.15ppt.
Three scenarios for UK headline inflation (YoY%)
July-Oct energy price cap based on average gas prices between mid-Feb and mid-May and are linked to futures contracts for delivery in 6-12M, as opposed to the front-month future
Source: Macrobond, ING
Cooler jobs market will limit the impact on wage growth and services inflation
But this will take some time to show through fully. Household energy prices are capped by the regulator and only 40% of that cap is directly affected by gas prices. The next update isn’t until July and that’ll be based on average wholesale prices from mid-February to mid-May, focusing on energy contracts for delivery next autumn/winter. That means the more short-lived the energy price spike, the less of an impact it will have on households this summer.
Rising energy prices inevitably revive memories of the 2022 shock. But there’s an important difference: the jobs market is much, much weaker now. In early 2022, more than half of firms told the Bank it was “much harder” than usual to recruit. Today that figure is just 10%. Vacancies are substantially lower and unemployment higher, meaning workers have less bargaining power to drive up wage growth and protect their disposable incomes.
Something similar is true of corporate pricing power. Food retailers wouldn’t struggle to pass on higher costs, but consumer services probably will. They were a key source of inflation amid the 2022 spike; energy is a key input cost for hospitality and others. Those same industries have been shedding workers through 2025. Further cost pressure from energy bills is more likely to trigger even lower headcounts than higher prices, limiting the impact on services inflation relative to 2022.
Much also depends on how the government reacts. In 2022, policies including a £2,500 cap on household energy bills cost £50bn – or 2% of GDP. That kept the UK economy out of recession and arguably provoked a more significant rate hiking cycle than might have otherwise come to pass. Temporarily cutting VAT on energy bills, lowering fuel duty and transferring some of the cost of household energy bills onto general taxation are obvious levers if the crisis escalates.
Yet the Treasury is constrained by its fiscal rules. Yesterday’s Spring Statement may have shown the government has ample “headroom” under those rules, but that starts to disappear when you consider mounting spending pressures – not least from defence – that are likely to come into sharper focus this year. Though gilt issuance is falling back, markets would not take kindly to an unfunded energy support package, potentially tying the Treasury’s hands on how much support it can offer without countervailing tax increases.
In short, we still think UK interest rates have further to fall. But if energy prices stay at or above current levels, it’s hard to see the Bank cutting rates in March. It has previously said decisions are becoming more finely balanced as we approach the neutral level of interest rates. And remember that while the committee is heavily divided, Governor Andrew Bailey de facto has the deciding vote. Though he has leant into the idea of a March cut, it wouldn’t take much for him to vote for no change again this month.
We’ve pushed back our call for the next cut to April – though a significant de-escalation over the next few weeks could yet bring a March move back onto the table.
Hurtige nyheder er stadig i beta-fasen, og fejl kan derfor forekomme.
