United Kingdom: Energy-driven upside risks – Societe Generale

Societe Generale’s Sam Cartwright notes United Kingdom (UK) headline inflation rose to 2.9% year-on-year in July, driven mainly by higher household energy bills. Cartwright highlights that Brent and wholesale gas prices, plus indirect energy effects, are likely to push headline Consumer Price Index (CPI) towards 3.5% later in 2026. However, services and food inflation show easing, and indirect energy spillovers remain limited so far.

Energy shock shapes inflation outlook

"Looking ahead, headline inflation is likely to rise further in the near term as higher Brent crude and wholesale gas prices feed through to fuel and household energy costs."

"So far, the inflation data suggest that indirect effects from the energy shock have been limited, largely because upstream cost pressures take time to work their way through supply chains."

"While we expect some spillovers to food and goods inflation, firms' limited pricing power should restrict the degree to which higher input costs are passed on to consumers."

"We estimate that these factors, together with the gradual emergence of indirect effects from the energy shock, will push headline inflation to around 3.5% yoy later this year."

"Uncertainty is high around this forecast, given the volatility in energy prices."

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