Why Workforce Optimisation Drives British Mid-Market Agility

The UK is particularly exposed given its dependence on gas for electrical energy prices, which is why the International Monetary Fund (IMF) has actually modified its UK inflation and development forecasts more greatly than any other industrialized economy. Inflation briefly dipped below 3% for the very first time because early 2025, however the reprieve will be temporary.

ANSR July UK PRs

A weaker labour market and softer demand should avoid a repeat of 2022's double-digit spike, restricting second-round results. Our base case is inflation balancing 3.1% in 2026, peaking around 3.5%, before reducing to 2.5% in 2027, though dangers loom large if the Strait of Hormuz remains closed. The UK labour market was currently softening before the current energy shock, with joblessness increasing to 5.0% and vacancies at their lowest since the pandemic.

Firms are not yet shedding personnel, but hesitation to hire is widening the space in between job development and population growth. Higher energy costs will compound the pressure, and we expect unemployment to peak at 5.3% by year end. With wage development slowing to around 3.75% and inflation heading towards 3.5%, genuine pay looks set to be stagnant another challenging year for living standards.

ANSR July UK PRs

3 factors restrict the case for hikes: the energy shock is smaller than in 2022, rates are currently at a restrictive level, and a weaker economy lowers the danger of second-round inflation effects. That stated, rate increases can not be ruled out if energy costs rise further. Gilt yields are likely to remain elevated regardless, driven by the UK's inflation sensitivity and political uncertainty around a possible change of Prime Minister, keeping loaning costs high across the economy even if the policy rate stays on hold.