UK Economic Comment "UK: Inflation temporarily down in April" Titareva

Research evidence excerpt

UK Economic Comment "UK: Inflation temporarily down in April" Titareva

flation likely rising again in May (UBSe:

2.9% y/y). With utility bills set to increase in July, we expect inflation to continue rising

thereafter. Overall, we expect inflation to average 3.1% in 2026 and 2.6% in 2027.

Labour market eases further; latest data likely overestimates the pace of easing

The May labour market report showed further signs of labour market easing with a big

drop in the number of employees, a tick-up in the unemployment rate, and further

easing in wage growth. More specifically, the unemployment rate edged up 0.1pp to

5% in March, while the employment rate was stable at 75%. The more timely April data

on the number of payrolled employees showed a big drop of 100k, well below

expectations (-10k) and the largest single-month drop since May 2020. That said, the

decline looks somewhat exaggerated and is likely to be revised (given the volatility of the

data and previous substantial revisions). The number of vacancies also fell in April (-7k).

While wage growth including bonuses came in stronger than expected (+0.2pp to 4.1%

y/y), AWE excluding bonuses fell 0.2pp to 3.4% y/y, matching expectations. Private

sector regular pay (the BoE’s preferred measure) was down 0.2pp to 3% y/y, slightly

below the Bank’s forecast (and consensus) of 3.1%.

BoE: We expect the next move to be a cut (in 2027), not a hike

We continue to expect the next policy move to be a cut (in February and April 2027), not

a hike, in contrast with market pricing for two hikes by the end of the year. Given the

weak starting point for the economy, including the labour market, the more limited and

targeted fiscal response as well as still-restrictive monetary policy (at 3.75%), we believe