United Kingdom: Inflation risks tilt higher – TD Securities
TD Securities’ Julie Ioffe expects UK headline CPI to rise to 2.9% year-on-year in July, largely due to the Ofgem energy price cap adjustment. Services inflation is forecast to ease to 3.4%, while core goods rise to 1.0%, keeping core CPI at 2.6%.
Concerns about rising inflation rates in the United Kingdom have increased, according to TD Securities' Julie Ioffe. She anticipates the UK's headline Consumer Price Index (CPI) to reach 2.9% year-on-year in July, primarily due to adjustments in the energy price cap by Ofgem. Services inflation is projected to decrease to 3.4%, while core goods inflation is expected to rise to 1.0%, maintaining the core CPI at 2.6%.
The bank calls attention to potential upward risks from food, airfares, and core goods that could disrupt the recent disinflation trend. The forecasted headline inflation for July is 2.9% (market: 2.9%, Bank of England: 2.8%, previous: 2.6%).
Including energy costs, the bank predicts services inflation to temporarily decline to 3.4% (market: 3.3%, Bank of England: 3.4%, previous: 3.6%), but core goods inflation increasing to 1.0% (Bank of England: 1.0%) should largely counterbalance this, keeping core inflation stable at 2.6% (market: 2.5%). Over the coming months, the inflation outlook might be less favorable than recent data suggests, excluding energy.
Food prices might experience a rise due to higher fertiliser costs and adverse weather conditions impacting production. Airfare inflation may also accelerate, as airlines plan to recover increased fuel expenses through higher post-summer ticket prices. Core goods inflation shows signs of turning upward, with electronics price increases and renewed supply chain pressures limiting discounting opportunities.
These factors suggest that sustaining improvements in some inflation components may become increasingly challenging in late 2026. Wage responses to a slightly higher inflation path remain uncertain, as the loosening labor market and reduced bargaining power of workers may limit their effect. If wages do not adjust accordingly, the Bank of England may continue maintaining its restrictive Bank Rate level, rather than pursuing further hikes.
Recent actual inflation data for July showed a 0.1% monthly increase in headline CPI and a 0.2% increase excluding food and energy. However, annual headline inflation remains high at 3.4%, which means wage earners are experiencing stagnant spending power at best and core inflation being slightly above the 2% inflation target.
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