More generally, the price of services (+5%) remains the key factor explaining inflation that remains well above the Bank of England’s 2% target.
This is a direct result of full employment, with an unemployment rate stable at 4.4% in December, favouring wage increases (+6% in December on an annual basis). This factor heavily weighs the price of services where labour intensity is higher. This rebound in inflation puts monetary authorities in an uncomfortable position.
While a lower key rate would be welcome to support sluggish economic activity, the price rebound requires a more cautious monetary approach.
All the more so since wage costs, and therefore probably prices if companies pass them on to their customers, will rise sharply on 1 April with the increase in social security contributions and the revaluation of the minimum wage.
The economic and financial situation in the UK for the next quarters is very uncertain, which is why we are avoiding this market. Do not buy UK shares.