Standard Chartered strategists Christopher Graham and John Davies highlight that growing labour market slack and fragile domestic demand should limit second-round inflation effects in the United Kingdom (UK). With vacancies at multi-year lows and payrolls down, workers’ wage bargaining power and firms’ pricing power are seen weaker than post-COVID, while the prospect of broad fiscal support to offset higher energy prices is viewed as much less likely than in 2022–2023.

Labour slack and weaker demand dynamics

"Indeed, growing labour market slack (with vacancies now at their lowest level in more than 10 years, and payrolls down 120k over the past 18 months), as well as fragile domestic demand, will likely mitigate the risk of second-round effects, with workers holding significantly less wage bargaining power and firms less pricing power than in the post-COVID environment."

"Added to this, the prospect of widespread fiscal support in the face of higher energy prices looks much less likely."

"The degree of support in 2022 and 2023 likely stretched out the inflation shock, while mitigating downside economic risks."

"This time around, the macroeconomic environment looks very different."

"Underlying demand was weaker back then, but it still shows there is precedent for looking through energy price shocks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)