Deutsche Bank’s Chief UK Economist Sanjay Raja reports that UK inflation data has broadly matched expectations, with Headline CPI at 3% and a stronger Services CPI contributing to a firmer Core CPI outcome [1]. The increase in services inflation is attributed to gains in private rents, travel prices, and accommodation prices, which have added upward pressure to the services sector [1]. Raja warns that rising fuel, energy, and input costs are likely to push CPI back towards 3.5% year-on-year later in 2024, undermining prospects for Bank of England rate cuts and even raising the risk of renewed hikes [1].
Pump prices have risen by nearly 7% in March and are expected to rise by a similar amount in April, while July dual fuel bills are poised to increase by nearly 30% [1]. Markets no longer anticipate a swift decline in energy prices, and there is a growing risk of spillover effects into other parts of the CPI basket, including rising fertilizer and shipping costs [1]. The potential for second-round effects is described as no longer negligible, further complicating the inflation outlook [1].
Looking forward, Raja suggests that with the exception of Q2-26, CPI will jump back to 3% and peak near 3.5% year-on-year later this year [1]. This anticipated bump in inflation is expected to put to rest any talk of rate cuts by the Bank of England in 2024 [1].
CONCLUSION
UK inflation is expected to rise again, driven by higher energy and input costs, with CPI forecasted to peak near 3.5% later in 2024. This outlook significantly reduces the likelihood of Bank of England rate cuts this year and raises the risk of renewed hikes. Market participants should prepare for persistent price pressures and a more challenging monetary policy environment.