UK: Inflation to move beyond 3% by end-2017 – Lloyds Bank

In view of the analysts at Lloyds Bank, sterling weakness and retail energy tariff rises drive quicker pace of price increases UK-specific currency weakness remains the key driver of the inflation outlook.

Key Quotes

“CPI inflation in April reached 2.7%, the highest since mid-2013 and only a whisker away from the 2.8% peak the Bank predicting will be reached towards the end of this year. The rise in inflation has been broadly based, with the ‘core’ rate – excluding food, energy, alcohol and tobacco – reaching 2.4% y/y in April, its highest since March 2013.”

“Inflation is expected to push sharply higher over the course of 2017. While non-energy import costs – including food – will henceforth be the dominant driver, hikes in domestic gas and electricity tariffs will also play a part. Weakening underlying cost pressures in the second half of 2017 should provide some offset as growth in the economy slows modestly and reduced labour market tightness limits the eventual overshoot relative to target. Still, compared with the BoE’s May projections – where CPI peaks at 2.8% in 2017 Q4 – our projected overshoot is a much higher 3.3%.”