British Pound: How does rising inflation complicate the BoE outlook? - Deutsche Bank

The Bank of England’s (BoE) policy stance faces greater complications as United Kingdom (UK) inflation trends higher, according to Deutsche Bank’s Chief UK Economist Sanjay Raja. Headline Consumer Price Index (CPI) inflation stands at 3.5%, while core CPI is at 2.8%. Services CPI has increased too, with food price momentum providing the main bright spot. Raja cautions that energy and food prices will rise further and expects firmer prices for index-linked services.

What does the inflation outlook mean for BoE risks?

"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.)