Standard Chartered strategists Christopher Graham and John Davies report that increasing slack in the UK labour market, combined with fragile domestic demand, is expected to limit the risk of second-round inflation effects. They note that job vacancies are at their lowest level in more than ten years, and payrolls have declined by 120,000 over the past 18 months, resulting in reduced wage bargaining power for workers and diminished pricing power for firms compared to the post-COVID period [1].
The strategists also highlight that the likelihood of broad fiscal support to offset higher energy prices is much lower than during 2022–2023. They observe that the fiscal support provided in those years likely prolonged the inflation shock while mitigating downside economic risks. However, the current macroeconomic environment is described as 'very different,' with underlying demand now weaker than before [1].
Standard Chartered suggests that, given these conditions, the risk of inflation being reignited by energy price shocks is less pronounced, and there is precedent for looking through such shocks based on past responses [1]. No specific market reactions or analyst forecasts are provided in the article.
CONCLUSION
Standard Chartered analysts believe that increased labour market slack and subdued domestic demand will help contain inflation risks in the UK. The reduced likelihood of broad fiscal support further differentiates the current environment from previous years, suggesting a more muted inflationary impact from potential energy price shocks.