Enhancing Executive Leadership for International Mid-Market Expansion

The UK is particularly exposed given its reliance on gas for electrical power rates, which is why the International Monetary Fund (IMF) has modified its UK inflation and growth forecasts more dramatically than any other industrialized economy. Inflation briefly dipped below 3% for the first time considering that early 2025, however the reprieve will be short-term.

ANSR July UK PRs

A weaker labour market and softer need should prevent a repeat of 2022's double-digit spike, restricting second-round results. Our base case is inflation averaging 3.1% in 2026, peaking around 3.5%, before relieving to 2.5% in 2027, though threats loom big if the Strait of Hormuz remains closed. The UK labour market was already softening before the latest energy shock, with unemployment increasing to 5.0% and jobs at their least expensive considering that the pandemic.

Firms are not yet shedding personnel, however unwillingness to employ is broadening the space between task growth and population growth. Higher energy costs will compound the pressure, and we expect unemployment to peak at 5.3% by year end. With wage growth slowing to around 3.75% and inflation heading towards 3.5%, genuine pay looks set to be stagnant another challenging year for living requirements.

ANSR July UK PRs

3 aspects limit the case for hikes: the energy shock is smaller than in 2022, rates are currently at a limiting level, and a weaker economy minimizes the threat of second-round inflation results. That stated, rate increases can not be ruled out if energy prices rise even more. Gilt yields are likely to remain elevated regardless, driven by the UK's inflation sensitivity and political uncertainty around a potential change of Prime Minister, keeping borrowing costs high throughout the economy even if the policy rate remain on hold.