Research Briefing | Jul 16, 2021

UK | Inflation surprise triggers a change of MPC tone

Ipad Frame - Inflation expectations are rising, not spiraling

Another upside inflation surprise points to the CPI measure peaking much higher than we previously thought. But June’s rise in prices did little to confirm fears that elevated inflation will become a persistent problem.
What you will learn:

  • Comments by two MPC members suggest that the odds of the committee tightening policy earlier than expected have risen. And a strong performance from labour market indicators in June errs in the same direction.
  • Economic indicators have had a habit of surprising to the upside in recent months. And while this has been a pleasing development in the case of, say, retail sales, an unexpectedly big jump in inflation in June was a less welcome eye-opener.
  • The annual CPI measure rose to 2.5% from 2.1% in May. June’s reading compared with a recent low of only 0.2% last August and was the highest outturn since August 2018. 
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