In the wake of the Covid-19 pandemic, inflation rose further and for longer than most market participants expected in many countries, including the UK. Expansive monetary policy and fiscal stimulus, disruption to supply chains, and a shift in demand from services to goods during the pandemic all placed upwards pressure on inflation. The Russia-Ukraine conflict, and the global supply-shock emanating from it, exacerbated these price pressures.

Headline inflation has fallen significantly since its peak in October 2022 as supply-side disruptions have eased and tighter monetary policy has taken effect. However, underlying measures of inflation still point to stubbornness in price pressures.

Some highlights from this quarter's outlook:

• Headline CPI fell below the Bank of England’s (BoE) 2% target in September, to 1.7%, after it rose slightly to 2.2% in July and August.
• Core inflation, which excludes volatile food and energy prices, has been falling more than the BoE expected but, alongside wage and service sector inflation, remains elevated.
• The Office for Budget Responsibility (OBR) expects a temporary rise in headline CPI from around 2% in Q3, to an average of 2.6% in 2025, driven by higher gas and electricity prices as well as the direct effect of the fiscal loosening in Rachel Reeves’s 30 October budget.

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Important Information

This InflationWatch has been compiled by Hymans Robertson LLP® (HR) as a general information summary and is based on its understanding of events as at the date of publication, which may be subject to change. It is not to be relied upon for investment or financial decisions and is not a substitute for professional advice (including for legal, investment or tax advice) on specific circumstances.

HR accepts no liability for errors or omissions or reliance on any statement or opinion. Where we have relied upon data provided by third parties, reasonable care has been taken to assess its accuracy however we provide no guarantee and accept no liability in respect of any errors made by any third party.