We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

What’s next for inflation in 2023?

UK inflation came in at 10.5% today, but what’s next for rising prices?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

As energy prices retreat, inflation is finally climbing down from its dizzying heights. It’s fallen back to 10.5% in the UK and 6.5% in the US, and is retreating more rapidly than expected in the Eurozone.

Investors have cheered the direction of travel for prices, and the FTSE 100 has been flirting with record highs. They’ve also been buoyed by China’s reopening. This has fuelled the expectation that supply chain problems, which have caused goods shortages, will ease further.

Gas prices have retreated to levels not seen since the end of 2021, and crude oil has settled back at the range it was before Russia invaded Ukraine.

However, energy prices have proved to be volatile and the lack of investment in the industry is leading to expectations that they’ll remain relatively high for the foreseeable future.

Is sticky inflation in store?

With elevated energy prices looking likely to linger, there’s also the risk the tight jobs market and relentless food price rises will mean inflation stays stickier for longer.

Food prices continued their upwards march in December. Fresh produce in particular proved much more expensive, rising 15% compared to a year ago. However, there are warnings from industry bosses that prices will take considerable time to come down.

The latest jobs snapshot shows that the labour market is still tight – and wage growth is particularly strong in the private sector, increasing by 7.2% in the three months to November compared to a year earlier.

The disparity with public sector pay, which rose just 3.3% in the same period, is increasingly stark. This won’t help waves of industrial unrest. But it also could mean companies will pass on those higher wage costs through more price rises. If this happens, it could add to the inflationary spiral. The UK looks likely to have escaped a recession for now. However, the expected stagnant or shrinking economy in the months to come could lead to job losses and is expected to limit future wage rises. But right now, the tight labour market is still likely to be a cause of concern for Bank of England policymakers.

They’re not alone in worrying that the falls we’ve seen in the headline rates of inflation aren’t enough to stop the painful price spiral in its tracks.

The European Central Bank has warned that economic growth needs to be held back to make a significant dent in inflation and bring it back to the 2% target.

There’s still a long way to go, and it looks like investors should brace for further rate rises from central banks.

What could be next for stock markets in 2023?

Editor's choice: our weekly email

Sign up to receive the week’s top investment stories from Hargreaves Lansdown

Please correct the following errors before you continue:

    Existing client? Please log in to your account to automatically fill in the details below.

    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

    Loading

    Your postcode ends:

    Not your postcode? Enter your full address.

    Loading

    Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.

    What did you think of this article?

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Editor's choice – our weekly email

    Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

    • Latest comment on economies and markets
    • Expert investment research
    • Financial planning tips
    Sign up

    Related articles

    Category: Funds

    HL Select turns 7 – what we’ve learned and what’s next

    HL Select Fund Manager Steve Clayton looks back on seven years of the HL Select fund range, how it’s performed and what’s next.

    Steve Clayton

    01 Dec 2023 6 min read

    Category: Investing and saving

    How to invest, by the late, great Charlie Munger

    With Charlie Munger’s sad passing, we look back and share some of his most important investment philosophies for investing in the stock market.

    Maike Currie

    30 Nov 2023 4 min read

    Category: Investing and saving

    Autumn statement – National Insurance tax change plus ways to help cut your tax bill

    The headline grabbing National Insurance cut might look like good news, but the tax burden is still set to be the highest it’s been since the Second World War. Here’s what’s changed and what you can do to reduce your tax bill.

    Helen Morrissey

    30 Nov 2023 4 min read

    Category: Investing and saving

    Investing in healthcare – where are the opportunities?

    The healthcare sector is enormous, absorbing over 10% of the economic output of many developed nations. We take a closer look at the risks and opportunities to watch out for.

    Derren Nathan

    30 Nov 2023 5 min read