Food and flights
It will be a couple of weeks until UK data for September kicks off in earnest. This week will really only see a delayed publication of July’s retail sales data which, although salient, is unlikely to tip the needle on price. The same is true of next week with growth data to be published on Friday 12th. It will be the following week, in the days leading up to the BoE’s September rate decision on 18th September, that the real data begins. Like most central banks, the BoE is in its upmost data-dependent state, caught between stubbornly high inflation and cooling economic activity.
Market pricing shows no cut expected for September and November. However, given the data driven policy we are seeing, some uncertainty remains around the latter decision. The obsession of the BoE at the moment, as well as services inflation, is food inflation. The logic is interesting. One of the greatest drivers of future inflation is current inflation expectations. If you’re a consumer and you think prices will rise, you’ll front load your purchases driving up demand and therefore price. Hey presto, you created your own inflation. Well, food is one of the most visible day-to-day barometers we see. It’s the most common purchase (for most of us!) so we feel price change in real time. Food inflation is running close to 5%, creating concerns that inflation expectations may become decoupled with gross inflation.
Another stunning source of inflation is air fares that especially this time of year can impact inflation expectations. There isn’t a great deal to be done about either in the short run and there isn’t much good news to report that either should fall rapidly. The BoE is therefore reluctant to cut rates given the ongoing risk to inflation expectations. However, opening the prospect for a possible November cut, other key elements of inflation may begin to fall. Notably, rents have been falling as a result of changes in public housing thresholds. Looking forward, the outlook for November may also be markedly different if the government takes aim at taxation in its autumn budget. Currently it is not clear whether that budget will take place before or after the BoE’s November meeting.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Inflation’s peak?
Charles Porter
Thu 23 Oct 2025
Inflation’s peak? Yesterday’s publication of the latest UK inflation report will be welcomed by households and the government alike. The report released prior to the market open yesterday showed UK inflation to September remained stable month-on-month. That might not sound like a whole lot at face value, but it is in fact critical that headline […]
Daily Brief – Calling time on Swissy
Charles Porter
Tue 14 Oct 2025
Calling time on Swissy Switzerland’s Franc may be destined to faulter under its own weight. Despite rock bottom interest rates, the Swiss Franc has been a significant beneficiary of the post-Covid and Trump2 world. EURCHF, a key barometer of European risk, shows some 20-cents worth of Swiss rally post-Covid. The pair has dropped from well […]
Daily Brief – A testing week
Charles Porter
Tue 21 Oct 2025
A testing week Markets so far have largely endured the admonitions coming from significant figures within the world of finance. The Bank of England’s own Andrew Bailey’s warnings of the risks of a market crash were uncommon for an MPC chair and initially took markets aback. Shortly thereafter, prominent figures warned of a pre-Halloween fright […]
