Britain consumer inflation likely to move higher this year on weaker GBP, says Danske Bank

The United Kingdom’s both headline and core consumer price inflation (CPI) are likely to rise significantly this year as the drag from both energy and food prices fades and given higher import prices.

It usually takes some time for currency changes to feed into consumer prices. Import prices in October 2016 were already 8.4 percent higher than the previous year, the highest annual increase since 2009, and there is still potential for even further import price increases, as they have not risen as much as suggested by the GBP depreciation. Food and oil prices measured in GBP have also risen.

"We expect CPI inflation to remain elevated for a period and to peak just below 3 percent. That said, we think the underlying inflation pressure, as measured by wage growth, will stay muted, as we see limited room for significantly higher wage growth when GDP growth is slowing and the unemployment rate may rise," Danske Bank commented in its recent research report.