Aberdeen: Pre‑conflict data masks new inflation risks for the UK economy
By Luke Bartholomew, Economist at Aberdeen
Today’s UK's inflation report is little more than a relic of the world before the Iran conflict.
While the February report was broadly in line with expectations and confirms that inflation was on a path back to 2%, the outlook for inflation has radically changed. Yesterday’s PMIs offered the first sign of how much the energy price shock is changing the inflation outlook, and this will start to show up in next month’s data, before building later this year when the energy price cap moves higher. Clearly the Bank of England is worried about inflation. And while the underlying weakness of the economy means rate cuts would be painful, policymakers may decide they do not have the luxury of “looking through” higher inflation, especially if the conflict does last longer than the market currently seems to be hoping.