On hold as CPI stays above target – Societe Generale

Societe Generale economists note the United Kingdom (UK) markets still price around 70 bps of Bank of England (BoE) easing in 2026 despite Monetary Policy Committee (MPC) pushback, while the bank’s team expects no cuts this year. They see higher fuel costs lifting headline CPI modestly above BoE projections and keeping it near 3–3.5%, but argue slack and weak demand should limit second‑round inflation effects.

Limited pricing power and sticky inflation

“Last week in the UK, markets continued to price around 70bp of easing this year despite MPC members pushing back slightly on the market curve. Notably, Greene, who is fairly hawkish, noted that the growth inflation trade off is now more balanced compared with 2022, while the labour market being looser and interest rateshigher.”

“Elsewhere, headline CPI remained at 3% in February, matching both the Bloomberg consensus estimate and the BoE’s February projection. However, the February data preceded the energy shock and are now dated.”

“Higher fuel prices are likely to push headline CPI to around 3.2% yoy in March, roughly 0.5pp above the BoE’s February MPR projection and remain around this 3-3.5% level through 2026. Given the slack in the economy, rising joblessness, and soft consumption limiting firms’ pricing power, we expect second round effects to remain contained.”

“This week in the UK is likely to focus on second‑tier data. The March Decision Makers’ Panel survey is by far the most interesting, since it should capture firms’ initial CPI and wage expectations following the rise in wholesale energy prices.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)