Leading Indicators | Energy shocks return, but 2022-style inflation looks less likely

Labour market loosening suggests the current inflation uptick will be short‑lived

Labour market indicators are weakening more sharply, pointing to softer underlying demand despite near-term inflation risks. PAYE employment fell by 100,000 in April, following a revised 28,000 decline in March, leaving payrolls -0.7% lower year-on-year. Vacancies slipped to 715,000, while the claimant count rose by 27,000. Although headline earnings rose to 4.1%, bonus effects mask softer underlying growth, with pay excluding bonuses easing to 3.4%. A loosening labour market should limit second-round inflation effects and reduce pressure on rates.

Household energy costs not as high as initially expected

Energy price expectations have shifted higher, but not as sharply as first feared. The Ofgem cap is now projected to rise +13% to £1,850 in Q3, up from £1,641, broadly in line with April 2025 levels. Despite a 60% increase in wholesale gas prices, the more modest pass-through tempers the inflation outlook at the margin. Coupled with BoE commentary signalling a cautious approach to rate cuts, this reinforces a view of policy remaining restrictive even as growth risks build.

UK CRE returns hold firm through early volatility

UK commercial property delivered an annualised total return of +6.33% in April 2026, with Retail leading performance at +8.27%, followed by Industrial at +7.03% and Hotels at +5.80%. While the period is beginning to reflect some early effects from the Middle East conflict, performance has remained resilient against a more uncertain macro backdrop. Looking ahead, returns are likely to be driven more by income and rental growth than capital appreciation, placing greater emphasis on assets with durable occupier demand, pricing power and resilient income streams.