British Pound: Rising inflation complicates BoE outlook - Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja highlights that United Kingdom (UK) inflation is on an upward trajectory, with headline Consumer Price Index (CPI) at 3.5% and core CPI at 2.8%. Services CPI has also risen, while food price momentum is the main bright spot. Raja warns of further energy and food price increases and anticipates firmer index-linked services prices, complicating the Bank of England’s (BoE) policy stance.

Inflation outlook and 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.)