British Pound: BoE outlook grows more complex as inflation rises - Deutsche Bank

With headline Consumer Price Index (CPI) inflation at 3.5% and core CPI at 2.8%, inflation in the United Kingdom (UK) continues to climb, according to Deutsche Bank’s Chief UK Economist Sanjay Raja. Services CPI has risen too, leaving food price momentum as the main bright spot. Further increases in energy and food prices lie ahead, Raja warns, while his expectation of firmer index-linked services prices adds to the complications facing the Bank of England (BoE) over its policy stance.

Rising inflation complicates BoE policy outlook

"The good news? Inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would with food price momentum the one bright spot in the data (food and non-alcoholic beverages CPI didn’t move at 1.3% y/y). The bad news? Underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September."

"Looking ahead, further rises in energy prices are inevitable. With Brent spot prices rising again, further increases at the pump will hit the UK’s shores."

"Gas and electricity bills will see a big jolt in January too – our Ofgem Price Cap forecasts point to a near GBP 2,100 annual dual fuel bill in the new year, with declines only likely to come in the second half of 2027."

"We’ve also long argued that food price pressures would be hard to ignore for much longer. Despite fierce supermarket competition, higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so."

"Today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory. Despite today’s uncomfortable jump in CPI, there’s more to come."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)