J.P. Morgan: UK inflation is running at 30 year highs

J.P. Morgan: UK inflation is running at 30 year highs

March 28, 2022

Inflation UK
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UK inflation for February again surprised to the upside, with the headline consumer price index (CPI) up 6.2% y/y compared with consensus estimates of 5.9% and reaching levels not seen since 1992.

Part of this can be attributed to soaring energy costs but perhaps more concerning for policymakers is core inflation, which excludes energy, also running at 30-year highs. This creates a difficult challenge for the Bank of England (BoE). Interest rates are not particularly effective at curbing supply driven inflation and high energy prices may cause demand destruction. Yet the BoE will likely feel that the tight labour market warrants further policy normalisation. Overall, we expect more UK interest rate hikes ahead but policymakers could slow down the pace of hikes if high energy prices lead to a deterioration in the consumer outlook.

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28032022 J.P. Morgan

Source: ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Data as of 25 March 2022.

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