Fresh economic analyses from major financial institutions are sounding alarms over a potential resurgence of inflation in key European economies, presenting significant challenges for central banks and casting a shadow over the 2025 economic outlook. Reports from ING on Hungary and MUFG on the United Kingdom highlight persistent and re-accelerating price pressures that threaten to derail recent disinflationary progress.
Hungary's Troubling Forecast
ING Bank N.V. forecasts an "alarming reacceleration" of inflation in Hungary for 2025, challenging the post-pandemic decline. The analysis points to a complex mix of domestic and international factors driving this trend. Domestically, strong wage growth continues to outstrip productivity gains, fueling demand-pull inflation. Furthermore, planned adjustments to regulated energy and utility prices, previously delayed, are now entering the consumer basket. Supply-side constraints in the food sector, partly due to regional climatic factors, also keep food inflation elevated.
Externally, a weakening Hungarian forint (HUF) exchange rate and volatile global commodity prices apply additional upward "imported inflation" pressure. The National Bank of Hungary (MNB) now faces a delicate balancing act. Having cautiously eased its policy rate throughout 2024, a reacceleration may force a pause or reversal in this easing cycle. ING analysts warn that the primary risk is a "de-anchoring of inflation expectations," which could become embedded in wage and price-setting behavior, creating a self-fulfilling cycle. Hungary's inflation has proven stickier than in neighboring economies like Poland or the Czech Republic.
UK's Inflation Surprise
Simultaneously, a sharp and unexpected acceleration in UK Purchasing Managers’ Index (PMI) inflation signals has triggered significant concern. Analysis from global financial group MUFG, based on S&P Global / CIPS PMI survey data from early 2025, shows input cost inflation for both manufacturing and services re-accelerating, defying forecasts of a steady decline.
The surge reflects escalating costs for energy, raw materials, and wages, with businesses indicating an intention to pass these costs to consumers. MUFG highlights the UK's large service sector—constituting over 80% of the economy—as a particular concern, where strong wage growth and high demand fuel persistent price increases. This data directly contradicts the Bank of England's (BoE) goal of sustainably returning Consumer Price Index (CPI) inflation to its 2% target.
Policy Implications and Market Impact
The inflationary pressures in both nations present formidable policy dilemmas. The MNB and the BoE's Monetary Policy Committee (MPC) must weigh supporting fragile economic growth against the need to anchor inflation expectations. MUFG warns the UK data "clouds the monetary policy outlook significantly," suggesting the BoE may need to maintain a restrictive stance for longer, potentially delaying rate cuts. ING similarly notes the MNB's credibility is paramount and will be tested.
Market implications are already materializing. In the UK, government bond yields have edged higher on 'higher-for-longer' rate expectations, and sterling has experienced volatility. Equity markets, particularly rate-sensitive sectors like real estate and technology, face pressure. For Hungary, key implications include potential upward pressure on government bond yields, challenges to forint stability, and tested central bank credibility. Both analyses underscore that the post-pandemic inflation cycle is not following a simple downward path, introducing new volatility into the 2025 economic landscape.
