While the economic recovery has remained strong, there is still little sign that inflationary pressuresare emerging. CPI inflation was just 1.6% in July and the recent decline in import prices, fall in oilprices and continued weakness of both manufacturing and service firms’ output prices suggests that itcould fall to as low as 1% by the end of the year. (See Chart.) Admittedly, productivity will have torecover soon if inflation is to remain subdued thereafter. But there are tentative signs thatproductivity is beginning to edge up – quarterly growth in employment slowed to 0.5% in the threemonths to June and the composite employment balance of the CIPS/Markit surveys fell in August,despite growth in output strengthening. Accordingly, we continue to think that the UK is set foranother couple of years of strong growth together with below-target inflation.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services