The news that Consumer Price Index (CPI) inflation rates remained unchanged at 0.6% in August strengthens the argument that, for the time being, the UK still boasts a healthy economy, despite the Brexit vote.
However, while the recent data release certainly provides welcome news and supports the view that the initial economic impact of the EU referendum is smaller than initially feared, it does not clarify the medium- to long-term impact.
Indeed, recent PMI figures show that price pressures are slowly building up in both the manufacturing and service sectors. As a consequence, and in line with other market watchers, Dun & Bradstreet expects a significant uptick in the harmonised CPI: after an expected inflation rate of 0.7% in 2016, our baseline scenario is that it will rise to 2.4% in 2017.
We are also maintaining our view that it will be many more quarters before the impact of Brexit can be fully assessed. We do not expect the UK economy to truly feel the reverberations of Brexit until negotiations with the EU are complete – a process that will start in early 2017 but which is unlikely to be completed until late 2018.
Markus Kuger, Senior Economist, Dun & Bradstreet