GBP: Inflation stalling complicates BoE path – TD Securities

TD Securities’ Global Strategy Team expects UK inflation to hold at 3.0% year-on-year in February, in line with the Bank of England (BoE) and market consensus. Core CPI is seen steady at 3.1%, with services easing but core goods ticking higher. They note that this release does not yet capture the energy shock, with headline dynamics expected to shift from March.

UK CPI seen steady before energy shock

"We expect inflation to stall at 3.0% y/y in February (mkt: 3.0%, BoE: 3.0%). Though the food and energy components should show some easing, we see core remaining steady at 3.1% y/y (mkt: 3.1%, prior: 3.1%) as easing in services inflation to 4.2% y/y (mkt: 4.3%, BoE: 4.0%, prior: 4.4%) is balanced by core goods ticking up to 1.2% (prior: 0.8%). Ultimately, this month's data does not yet reflect the energy shock and headline dynamics are expected to start shifting in March."

"UK private sector firms saw business activity growth slow sharply, mainly due to the war in the Middle East impacting demand, input costs, and supply chains. Services PMI showed a much more marked decline to 51.2 (TDS:52.5; mkt: 52.9; prior: 53.9), while manufacturing was a more subdued slowdown to 51.4 (TDS/mkt: 50.0; prior: 51.7). Optimism fell to its lowest since June 2025, while cost pressures intensified—especially for fuel and raw materials—leading to the steepest input price inflation since early 2023 and subsequently the fastest rise in output charges since April 2025."

"Marginal output growth, a drop in new work, falling export sales, and longer delivery times signalled subdued demand. Both manufacturing and services faced higher costs and output charges, squeezed margins, dampened business sentiment and increased job losses. From a monetary policy perspective, the Bank of England faces an increased challenge of balancing downside growth risks and upside inflation that are already materialising in March data, as evidenced by this PMI release."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)