Tom Miller
21/08/2026
The rain came back this week and, for the first time in living memory of a British summer, nobody complained.
Five heatwaves later, it has certainly been a summer that beat everyone’s expectations.
The economy has been on a similar run. Growth has surprised to the upside, with Q2 up 1.2% on the year, ahead of the 1.1% expected. Inflation fell to 2.6% in June, a 15-month low. Food inflation hit its lowest in almost five years, and Andy Burnham has taken up the top job without a Truss-style gilt tantrum. Given the concerns coming out of the Iran conflict, the UK economy has proven surprisingly resilient.
However, is yesterday’s inflation print a sign of the economic weather turning? CPI is now back up to 2.9%, driven overwhelmingly by the 13% jump in the Ofgem cap – the largest rise in gas prices since October 2022 and the start of the Ukraine war. Whilst this was expected, I suspect it may be the start of a harder stretch rather than a one-off. What is the cause of my pessimism? Well, look at what’s coming down the line.
Oil – Brent is back around $91, roughly a quarter above pre-conflict levels. The Iran conflict is closing in on seven months and Hormuz is still, functionally, shut, with no sign of resolution any time soon. Even if the conflict stays frozen, we can expect inflationary pressure in energy costs for at least the next 12 months – and that is without the risk of further escalation, which recent events suggest remains likely. The region is also a supplier of LNG and a range of critical components for things like fertiliser.
Politics – In the last week alone, Trump has threatened to bomb Oman – an ally, and the country actually mediating with Iran – and scaled back joint exercises with South Korea because Seoul declined to support US action in Iran. Whatever you make of the strategy, “predictable” isn’t the word.
Food – Europe has just come out of the oven, and the odds of a very strong El Niño this winter are high. Combined with rising fertiliser costs from the Iran conflict, food prices are almost certain to increase over the next 12 months. Today’s five-year low in food inflation is not where I’d expect us to be through 2027.
Rates – In the background, governments everywhere continue to spend money they don’t have. The US 30-year T-Bill is at its highest since 2007, a story that is repeated globally. Markets are increasingly unwilling to fund deficits without compensation.
So, as you can see, I am a little hawkish over the next 12-18 months. However, longer term, I’m still on the other side, and expect UK inflation and rates to trend lower.
The domestic engine isn’t firing. Domestic labour markets have been weakening for some time; job vacancies fell to 707,000 yesterday, the lowest in over five years, but the number of people in employment has also been falling – employers are slowing new hires and letting headcount drift through natural attrition; combined this signals labour market slack, albeit the trends are not aggressive, and may be stabilising. Private sector pay growth is flat in real terms, its weakest since 2020. Whilst services inflation remains a little sticky it has also been easing. This feels like an economy that is ticking over, rather than accelerating and hardly calling out for rate hikes.
Then there is AI, which whilst inflationary in the short term given the demand on components and data centres should be disinflationary over the longer run, particularly if it is to deliver the promised productivity gains. Of course, if it has oversold the gains and the bubble pops, we will almost certainly see recessionary pressures hit the markets. Take your pick; both would feed into lower inflation and downward pressure on rates fall long term.
Which brings me to the practical bit.
With a volatile autumn and winter approaching where we may see rates pressure feed into swaps and gilts, Housing Associations should ensure treasury portfolios are in good health, particularly as any near-term rates movements would seem likely to coincide with a step up in development funding needs – should the Government ever confirm the SAHP bids. Risk mitigation strategies should be kept up to date and action plans continue to factor in rates risk. The good news is funding markets remain on side, with a wide range of competitively priced funding and hedging options available at scale. The wobble in private credit funds in the USA early this year has stabilised – it now looks more like an AI/software sector based correction than a crash that could impact credit availability more broadly – albeit it offers insight into what a true AI bubble burst might look like.
So my advice, use the last of the good weather.
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Contact Tom Miller or any member of the Housing, Education & Care sector to discuss these outlooks.
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