Sticky Prices, Softening Labour: UK Caught Between Disinflation and Drag

NatWest’s July 21 Economic Update assesses the UK’s delicate economic rebalancing as wage growth eases, inflation proves stubborn, and policymakers face a narrowing path between tightening and support.

• Labour slack builds slowly: Unemployment rose to 4.7%, with job losses broadening beyond low-wage sectors, while wage growth continues to cool.

• Inflation surprises to the upside: Headline CPI rose to 3.6% in June, driven by sticky core goods and services, complicating the Bank of England’s rate-cut calculus.

• Mixed global signals: U.S. inflation shows signs of tariff pass-through, Europe’s inflation remains stable, and China’s recovery masks structural weakness.

Is monetary easing still on track—or will inflation persistence force a pause? The full commentary offers cross-market insights and policy implications.