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

UK headline Consumer Price Index (CPI) inflation stands at 3.5%. Core CPI is at 2.8%, with inflation trending upwards, according to Deutsche Bank’s Chief UK Economist Sanjay Raja. Services CPI has also increased, leaving food price momentum as the main bright spot. For the Bank of England (BoE), the policy outlook is becoming more complicated: Raja expects firmer index-linked services prices and warns that energy and food prices will rise further.

3.5% headline CPI: 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.)