U.K. consumer price inflation likely to peak in Q4 2017

The annual pace of U.K. CPI inflation saw its first decline since October 2016, falling to 2.6 percent year-on-year in June from May’s 2.9 percent, coming in below consensus expectations of 2.9 percent. The core inflation rate also dropped in the month to 2.4 percent, also below consensus expectations.

The below forecast result was mainly because of weaker goods prices, especially for food, clothing and footwear and furniture. These categories are more sensitive to changes in the currency. The drop in June inflation gave some signs that the peak impact of last year’s sterling depreciation might be behind now, noted Lloyds Bank.

The drop in June inflation now leaves inflation for the second quarter as a whole at 2.7 percent, widely consistent with the Bank of England’s forecast of 2.65 percent made in the May Inflation Report. In line with the central bank, there are still risks that the upward push from some residual sterling weakness would continue to exert some upward pressure on inflation.

According to Lloyds Bank, inflation is likely to peak in the fourth quarter, although the peak implicit was above 3 percent. The report released on Wednesday presents some risks to this view but there is still probability that upward pressure on inflation resumes in the months ahead, added Lloyds Bank.

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