UK CPI Preview: Forecasts from five major banks, inflation away from a 41-year high

The United Kingdom will release the Consumer Price Index (CPI) data on Wednesday, January 18 at 07:00 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming UK inflation print.

Headline is expected at 10.6% year-on-year vs. 10.7% in November while Core Inflation is likely to accelerate to 6.6% vs. 6.3% booked in November. If so, Headline would decelerate for the second straight month from the 11.1% peak in October but would remain far above the 2% target.   

Nomura

“We are forecasting headline CPI inflation to ease from 10.7% YoY to 10.4% in December and core inflation to fall more gradually from 6.3% to 6.2%.”

TDS

“We look for another large decline in UK headline CPI, largely due to an almost 5% MoM drop in petrol prices but also as retailers pushed through significant discounts in the month to rid themselves of high inventory levels. While our forecast (10.5%) is quite a bit below the BoE's of 10.9% YoY, much of this gap is due to lower petrol prices rather than weaker underlying dynamics.”

SocGen

“The December CPI print is likely to add weight to our belief that the 11.1% recorded in October was the peak in inflation, especially given recent energy price trends. There should be only a modest increase by 0.1pp to 10.8%, driven by higher core and food inflation. More important for the BoE will be core inflation developments. Therefore, our expectation that core prices accelerate from 6.3% to 6.5% in December will worry the Bank, especially because we think it will be driven by services inflation that is more dependent on wages. On the other hand, we see goods inflation softening from 6.3% to 5.9% due to a combination of negative base effects and retailers using discounts to shed excess stock. For the coming year, strong wage growth should see core inflation only gradually falling from our forecasted value of 6.5% in December to 6% by year-end.”

Citibank

“We expect headline CPI inflation to moderate further this week to 10.5% YoY. Core CPI may prove somewhat more resilient at 6.2%. On the core goods side, we see risks to the downside with high inventory levels, in particular, likely to have averted significant further price pressure. Services are trickier to call, with a train strike on the observation date in question and widespread disruption throughout the month.”

ING

“Headline CPI has peaked but is likely to remain in double digits through early 2023. But the Bank’s favoured measure of ‘core services’ inflation, perhaps the cleanest gauge of domestically-driven price pressures, has edged higher in recent months and this will be key. Signs that this is reaching a peak would boost the case for a more modest rate hike in February.”