TD Securities’ Global Strategy Team projects UK inflation to remain at 3.0% year-on-year in February, aligning with both Bank of England (BoE) and market consensus expectations [1]. Core CPI is anticipated to stay steady at 3.1%, with services inflation easing to 4.2% (market: 4.3%, BoE: 4.0%, prior: 4.4%) and core goods inflation rising to 1.2% from a previous 0.8% [1]. The report highlights that this data does not yet reflect the impact of the recent energy shock, with headline inflation dynamics expected to shift starting in March [1].
Business activity in the UK private sector slowed sharply, primarily due to the war in the Middle East affecting demand, input costs, and supply chains [1]. The Services PMI dropped significantly to 51.2 (TD Securities: 52.5; market: 52.9; prior: 53.9), while manufacturing PMI saw a more modest decline to 51.4 (TD Securities/market: 50.0; prior: 51.7) [1]. Optimism among businesses fell to its lowest level since June 2025, and cost pressures intensified, especially for fuel and raw materials, resulting in the steepest input price inflation since early 2023 and the fastest rise in output charges since April 2025 [1].
The report notes marginal output growth, a drop in new work, falling export sales, and longer delivery times, all signaling subdued demand [1]. Both manufacturing and services sectors faced higher costs and output charges, squeezed margins, dampened business sentiment, and increased job losses [1].
From a monetary policy perspective, the Bank of England faces heightened challenges in balancing downside growth risks with upside inflation pressures, which are already materializing in March data as evidenced by the PMI release [1].
CONCLUSION
UK inflation remains steady at 3.0% in February, but underlying pressures and slowing business activity signal mounting challenges for the Bank of England. The anticipated energy shock and intensifying cost pressures suggest that inflation dynamics may shift in March, complicating future monetary policy decisions. Market sentiment is cautious, reflecting subdued demand and increased risks to growth.