UK CPI Preview: Forecasts from six major banks, a temporary pause in the disinflationary process

The United Kingdom will release the Consumer Price Index (CPI) report on Wednesday, February 14 at 07:00 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of six major banks regarding the upcoming UK inflation print.

Headline inflation for January is expected at 4.1% year-on-year vs. 4.0% in December while core is expected at 5.2% YoY vs. the prior release of 5.1%. The Bank of England (BoE) expects headline CPI to print at 4.1% YoY in January.  Services CPI inflation is the BoE’s key indicator of domestic inflationary pressure. The BoE projects services CPI inflation to pick up two ticks to 6.6% YoY in January vs. consensus of 6.8%.

Deutsche Bank 

We expect headline CPI at 4.1% YoY and core at 5.0%.

TDS

UK headline inflation likely edged up to 4.1% YoY in January – matching the MPC's latest forecast – in part due to an increase in Ofgem's energy price cap. Core inflation likely remained at 5.1% YoY, while services inflation probably rose a touch more than the MPC expects (6.7% YoY). Uncertainty is particularly high for this print, in part due to the new CPI weights and notable volatility in airfares. Looking ahead, we continue to look for headline inflation to come down quickly starting in March and fall below the 2% target in April.

ABN Amro

CPI inflation is expected to rebound (4.6% YoY) on the back of a renewed rise in Ofgem’s household energy price cap, while core inflation is also expected to pick up on continued strength in services inflation.

SocGen

We expect both headline inflation and core to have rebounded by 0.1pp in January to 4.1% and 5.2%, respectively. But don’t worry. This is just a temporary blip in the disinflation process. Primarily, the increase is driven by a base effect in the services component due to a sharp decline in air fares and a tripling in its weight in January 2023. Along with airfares possibly causing some surprises again this year, cultural services inflation may reverse the upside surprise in December, but we believe this should be offset by stronger restaurant inflation. Relative to the BoE, we see a stronger rebound in services inflation to 6.9% vs. the Bank’s estimate in the February MPR of 6.6%. 

Wells Fargo

For the January CPI, base effects should see a modest uptick in some key inflation figures. The consensus forecast is for headline inflation to firm to 4.2% YoY, and core inflation is also expected to tick up to 5.2%. Beyond January, however, the downward trend in UK inflation is expected to resume.

Citi

We expect headline inflation to accelerate marginally this week from 4.0% to 4.1%. Sequential inflation – excluding energy – will likely remain very close to pre-Covid rates at just 0.1pp above. We expect services inflation in a 6.7%-6.8% range but overall, the MPC’s preferred measure of underlying inflation is likely to remain flat at 6.4%.