United Kingdom: Price pressures seen rising – Deutsche Bank

Deutsche Bank economists Sanjay Raja and Maui Brennan expect UK headline CPI to rise to 3.49% year-on-year in September, with core CPI at 2.74% and Services CPI at 3.71%. They project 2027 CPI to average 3.7% versus 3.2% in 2026, and see headline RPI jumping to 3.93% year-on-year near term and 5.2% longer term.

CPI and RPI projections move higher

"Where do we see September inflation? We expect inflation to push to its highest rate all year, with headline CPI rising to 3.49% y-o-y, with core CPI pushing to 2.74% y-o-y. Services CPI, we expect, will also rise, picking up pace to 3.71% y-o-y on stronger base effects."

"Looking ahead, we expect price pressures to increase further. Energy prices remain on an ascent. Lower harvests have already starting to show up in food cost price data."

"As such, our updated projections see CPI taking another step up, with 2027 CPI averaging 3.7% (previously, 3.5%) from 3.2% this year. Headline RPI, we expect, will rise from 3.7% y-o-y to 5.2% (previously, 4.8%)."

"Our projections sit broadly above the Bank’s forecasts with the exception of two categories: core goods CPI and food & non-alcoholic beverages CPI. We break down how our projections look relative to the Bank of England’s below."

"Where does this leave our projections? We see headline CPI still making its way higher from here, peaking at 4.3% y-o-y in February next year. For the full year now, we see headline CPI averaging 3.2% y-o-y in 2026 and rising to 3.8% y-o-y next year (previous: 3.5%)."