Catherine Brooks, head of institutional research, said the latest CPI supports a
Bank of England hawkish pause, though a material inflation shock could emerge in
September. No sign yet of inflation broadening across the economy, but
input-price pressure is visible: materials costs +6.1% YoY and factory-gate
prices +3.7% YoY, risks that could be passed to already-stretched consumers or
compress corporate margins. Core inflation stability is positive, but the BoE
has said energy prices now have greater influence on inflation expectations and
an elevated energy price cap leaves upside inflation risk. Markets have cut
near-term hike odds but still price roughly four hikes through end of next year.
Unless the Iran war ends or Middle East supply constraints ease, Brooks warned
the UK faces prolonged upward pressure on rates.
