UK Inflation Will Stay at 3% — Here’s Why the Market Is Wrong

UK inflation is falling while oil is up 35% and gilt yields are at an 18-year high. Neil Woodford explains why the 4-5% inflation forecasts are wrong again, what is actually in the CPI basket, and why the bond market may be pricing the wrong story.

The Telegraph says British inflation hits 4-5% by Christmas. The Bank of England, the City and the academic economists said the same thing in March, when oil was $120. July came in at 2.9%, food inflation at 1.3%. In this episode Jon Adair argues the inflation surge case as hard as he can and Neil Woodford takes it apart leg by leg: the energy shock and the price cap, food, second-round effects and wages, and the bond market.

Neil puts a number on December inflation and explains why most of it is already written. He covers why gas and electricity are 3% of the basket (half what they were in the 1980s), why 55% of the pump price is tax, why UK pay growth at a six-year low means there is no wage spiral, and why the gilt market is following US Treasury yields rather than a UK inflation problem. Then the bigger question: is this a new inflationary age, or the start of a period of disinflation driven by energy supply, China and AI? And if he's wrong, what happens.