UK inflation forecast to come in above Bank of England’s target again in December – business live
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Economists predict UK inflation was steady at 2.6% in December; markets on tenterhooks ahead of US inflation, out later in the day.
Thames Water has reportedly threatened to raise executives’ base salaries if the UK government pushes ahead with plans to limit bonuses.
Britain’s largest water company, which intends to raise bills by at least a third for the 16m customers it serves in and around London, has warned the water regulator of its plans to raise base pay, according to a report by the company’s regulatory strategy committee to the board of Thames Water, the Financial Times reported.
We have made it very clear to Ofwat that, if it proceeds with its proposals, it is highly likely that base pay will need to be increased to compensate for the loss of performance-related pay plans.
We also highlight the impact the proposals will have on attracting, retaining and motivating critically needed talent across the sector, and the importance of this for attracting investment.
Similar to November’s increase, we do not single out one particular factor behind the rise. Instead our forecast reflects the confluence of various upward influences, including base effects once again. One unknown is to what extent businesses are already preparing for the higher cost of labour come April – itself a reflection of higher NICs [national insurance contributions] and changes to the national living wage – by starting to increase prices. Being extremely volatile in nature, airfares also have the potential to cause swings in the headline inflation rate. We expect there was a small boost to inflation from this component in December.
From there we forecast inflation to remain above the 2% target for the entirety of 2025, but the core measure to make further progress lower from the spring. This disconnect can largely be explained by energy prices, with the absence of the sharp falls in prices over the course of 2024 lifting inflation in 2025. Some inflationary impact from the budget is also likely to feed into overall cost pressures. The big unknown at this point is the shape of Trump trade policy, and crucially, the response of others including the UK to any significant changes.
