UK Inflation sometimes is just no news

Given the August consumer and producer price data came in largely in line with forecast and consistent with the view that underlying inflation pressures remain fairly muted across the price chain, we have only fine-tuned our projected inflation profile.

"We continue to forecast CPI inflation to average 0.1% this year, while we now expect it to be 1.4% next year, a touch below our previous forecast of +1.5%, mainly reflecting a slightly lower oil prices assumption", says Barclays.

In the very near term, economists forecast CPI inflation to re-enter negative territory (in September and October), before slowly returning to positive territory around the end of the year, supported by energy base effects. Core prices are expected to hover around 1.1% until year-end. According to latest profile, headline CPI inflation is likely to reach 1.8% towards the end of 2016.

Risks to projected CPI inflation profile are broadly balanced. While volatile components could surprise to the downside relative, core inflation may come in stronger than expected as services inflation could accelerate, supported by improved domestic demand conditions, including stronger wage growth.

Forecast highlights the challenge for the BoE to engineer a rate hike, assuming growing underlying domestic pressures but facing stubbornly low headline inflation. While forecast likely calls for no rate hike, the BoE continues to forecast a stronger recovery in inflation and even an overshoot of its target in the course of 2017.

"We expect the uptick in RPI to prove temporary, as we believe it was caused primarily by differences in the way road fuel costs are treated in the two indices. Therefore, we expect the RPI print to be soft in September", notes Barclays.