United Kingdom: Growth resilience but softer inflation – Deutsche Bank

Deutsche Bank’s Sanjay Raja says the UK economy is tracking close to the Bank of England’s Scenario A, with stronger‑than‑expected early‑2026 GDP but a cooling labour market and easing price pressures. GDP is seen around 1% in 2026–27, while CPI is projected slightly below Scenario A and potentially under the 2% target at longer horizons.

Scenario A path for growth and CPI

"The economy - at least on the surface - has been stronger than the Bank assumed. GDP growth, to start the year, was stronger than the Bank anticipated. But the labour market has softened a touch, relative to the Bank's expectations."

"Relative to the MPC’s scenarios, we see GDP growth tracking closer to Scenario A, with output a little more resilient on the back of stronger catch up in Q1-26. Q2-26 GDP growth looks poised to push closer to 0.1-0.2% q-o-q. And annual GDP growth this year looks set to be at the BoE staff projection of 0.9%, with growth likely to push upwards of 1%."

"Based on current market conditions, GDP growth is expected to push a little past all three Bank scenario projections this year. Incorporating the stronger Q1-26, we would expect Bank projections, under current market conditions, to have increased to 1% (Scenario A: 0.8%). GDP growth in year 2 (2027), we expect, would also stay steady at 1% – broadly consistent with the Bank's Scenario A & B."

"On inflation, based on current market conditions, we would expect CPI to remain slightly below the Bank's Scenario A projections. If we applied the same conditioning assumptions to Scenario B, headline CPI would likely sit 0.1pp to 0.15pp below the Bank's projections at both the two-year and three-year forecast horizons – pushing headline CPI below the Bank's 2% target."

"Based on current market pricing and recent outturns, the UK economic trajectory remains closest to the Bank's Scenario A."

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