United Kingdom: Upside CPI risks building into 2027 – Deutsche Bank

Deutsche Bank’s Sanjay Raja expects UK headline CPI to edge up to 3.01% year-on-year in May, with core CPI at 2.72% and Services CPI at 3.65%. The bank projects CPI to average 3.1% this year before easing to 2.6% next year and 2.3% in 2028, with risks to inflation seen skewed to the upside.

CPI path lifted by energy and services

"After a bigger than expected drop in inflation over April, we expect a little more of a bounce in the data. Indeed, some of the drop in services prices will likely unwind into May. Food and core goods prices will also likely see some lingering price pressures."

"Looking ahead, the inflation trajectory points to further upside. We expect more price pressures to build in the coming months–particularly as dual fuel bills reset in July."

"We expect CPI to track around 3.1% y-o-y this year, before slowing to 2.6% y-o-y next year."

"In short, we continue to see CPI taking a small step up over the remainder of the year as dual fuel bills rise and some upward pressure from food/core goods feed through into the data. Our peak in CPI has now been revised lower, on account of downward sloping oil and gas futures curves."

"Risks remain skewed firmly to the upside. Price survey data point to further price pressures ahead—and more so than what our models suggest."

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