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IoD press release Market jitters add to complex inflation outlook

Commenting on today’s data from the Office for National Statistics, that showed the annual rate of CPI inflation dropping a little to 2.5% in December 2024 from 2.6% in November, Anna Leach, Chief Economist at the Institute of Directors, said:

“Inflation has come in a touch lower than expected in December, bringing inflation for 2024 as a whole to 2.5% from 7.3% in 2023. Services inflation has also seen a better-than-expected tick-down to 4.4%. Inflation is expected to be fairly steady over the next few months, with services price inflation expected to remain sticky at around 5% – well above pre-Covid averages.

“The inflationary outlook is somewhat uncertain as we wait to see how the private sector reshapes around significantly higher employment costs. The huge increase in public sector spending – one of the biggest fiscal loosenings in decades – is currently expected to plug the growth gap left by a straightened private sector, as well as push up inflation. But if the recent rise in gilt yields is sustained, there’s a risk that the Chancellor will have to scale back public sector spending, pulling back growth. Meanwhile a weaker pound will put upward pressure on import prices if sustained. With so much news to absorb, it’s no surprise markets have a touch of New Year indigestion.

“The shaky start to 2025 in financial markets underscores the UK’s growth challenges. Recent market movements reflect growing concerns that the UK is heading for stagflation, as well as broader global factors.  The government’s focus on driving up investment to deliver stronger growth is the right one – any need to scale back public sector settlements in response to higher borrowing costs must protect capital budgets. To support a recovery in business confidence and to drive up growth prospects, we need strong growth messaging from the government and swift action to strip back regulation and planning restrictions, alongside tax simplification and improvements to the AI landscape.”

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