U.K. inflation likely to accelerate sharply in course of 2017 – Lloyds Bank

The U.K. inflation outlook continues to be mainly driven by UK-specific currency weakness. Consumer price inflation had reached 2.7 percent in April, the highest since mid-2013 and just slightly away from the 2.8 percent peak the Bank of England predicting would be reached towards the end of the year. The acceleration in inflation has been widely based with the core rate reaching 2.4 percent year-on-year in April, the highest since March 2013.

Inflation is likely to accelerate sharply over the course of this year. While non-energy import costs, such as food, would therefore be the dominant driver, hikes in domestic gas and electricity tariffs would also play a part, stated Lloyds Bank in a research report.

Weakening underlying cost pressures in the second half of this year should give some countereffect as growth in the economy decelerates modestly and reduced labor market tightness restricts the eventual overshoot relative to target.

“Compared with the BoE’s May projections – where CPI peaks at 2.8 percent in 2017 Q4 – our projected overshoot is a much higher 3.3 percent”, added Lloyds Bank.