The Role of Sustainable Finance in UK Business Strategy

The UK is especially exposed offered its dependence on gas for electricity rates, which is why the International Monetary Fund (IMF) has revised its UK inflation and development forecasts more sharply than any other developed economy. Inflation briefly dipped below 3% for the very first time since early 2025, but the reprieve will be brief.

ANSR July UK PRs

A weaker labour market and softer demand need to avoid a repeat of 2022's double-digit spike, restricting second-round effects. Our base case is inflation balancing 3.1% in 2026, peaking around 3.5%, before alleviating to 2.5% in 2027, though risks loom large if the Strait of Hormuz remains closed. The UK labour market was currently softening before the current energy shock, with joblessness rising to 5.0% and vacancies at their most affordable considering that the pandemic.

Companies are not yet shedding staff, but reluctance to hire is expanding the space between job growth and population growth. Greater energy expenses will intensify the pressure, and we anticipate joblessness to peak at 5.3% by year end. With wage development slowing to around 3.75% and inflation heading towards 3.5%, genuine pay looks set to be stagnant another difficult year for living requirements.

ANSR July UK PRs

3 elements limit the case for walkings: the energy shock is smaller sized than in 2022, rates are currently at a limiting level, and a weaker economy lowers the threat of second-round inflation impacts. That said, rate rises can not be dismissed if energy rates surge further. Gilt yields are likely to stay raised regardless, driven by the UK's inflation level of sensitivity and political uncertainty around a prospective change of Prime Minister, keeping borrowing costs high throughout the economy even if the policy rate remain on hold.