United Kingdom: Upside risks building for inflation – Deutsche Bank

Deutsche Bank's UK Chief Economist Sanjay Raja points out that UK inflation data for July aligns with expectations, with headline CPI increasing to 2.9% year-over-year (June: 2.6%) and core CPI remaining steady at 2.6% year-over-year. Energy price hikes due to the Ofgem Price Cap and base effects were noted as drivers, while food and services inflation showed easing.

Raja anticipates further upside for CPI later in the year but warns of risks for the Monetary Policy Committee (MPC). UK inflation met expectations today, with energy prices rising and base effects contributing to inflation. However, food prices declined to their lowest level since late 2021, and services inflation slowed to its lowest in three months.

Core goods pricing remains restrained due to ongoing summer discounting and competitive promotions. Looking ahead, a slight increase in services inflation and further energy price hikes are possible, with CPI peaking near 3% year-over-year by year-end. The Monetary Policy Committee (MPC) should remain cautious, as both food and energy inflation measures have risen, indicating concerns over price momentum.