“Inflationary momentum is set to weaken in the coming months” says Yael Selfin, Chief Economist at KPMG UK.
“Energy prices have re-emerged as an upside risk to inflation. Crude oil prices are up by over 20% since June, while UK gas prices are the highest since February.
“Nonetheless, other external factors – including the easing of supply chain bottlenecks – have been favourable for UK inflation. This has supported a drop in goods inflation, which is more sensitive to the global economic environment because of its higher import content. Producer price inflation, which tends to lead goods CPI inflation by around three months, points to further easing in the months ahead.
“Despite ongoing pressures, the overall outlook for inflation looks more positive in the coming months. Base effects from the large fall in Ofgem’s price cap could see headline inflation dropping below 5% in October. Together with the ongoing loosening of the labour market, this should be sufficient for the Bank of England to keep interest rates on hold as it takes stock of the impact of past tightening.”
