MUFG’s Head of Research Derek Halpenny underlines that United Kingdom (UK) PMI Services and Composite data show a larger downturn than in Europe, with a record jump in input prices driven by energy concerns. The Food & Drink Federation now sees year-end food inflation at 9–10%, and Halpenny warns that even with a ceasefire, inflation risks remain elevated and a Bank of England (BoE) rate hike cannot be ruled out.

PMI and food inflation keep BoE on edge

"The PMI Service data was released yesterday and the decline recorded was certainly larger than seen in Europe – the final estimate was 0.7ppt below the initial estimate with inflationary risks clearly a key driver in the worsening business sentiment."

"The PMI Composite Input Price index surged by a record 6.7ppts, surpassing the previous record following the plunge of the pound after the Brexit referendum result in 2016 and hence a larger jump than during the global inflation shock following Russia’s invasion of Ukraine in 2022."

"Last week, the UK’s Food & Drink Federation updated its inflation forecasts and now expects a year-end food inflation rate of between 9%-10%."

"That forecast assumption does highlight the potential fallout going forward even under a circumstances of a ceasefire lasting."

"The forecasts show that the damage has been done to a degree and while a ceasefire is undoubtedly good news, the inflation risks have not fallen away entirely and a rate hike therefore cannot be immediately ruled out."

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