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U.K. Inflation Is Getting "Hotter", Says Deutsche Bank

BY MT Newswires | ECONOMIC | 08/20/25 07:59 AM EDT

07:59 AM EDT, 08/20/2025 (MT Newswires) -- Wednesday's inflation report confirmed what Deutsche Bank's chief U.K. economist Sanjay Raja said he expected: the headline consumer price index was a touch stronger than consensus, with overall price momentum up 3.8% year over year, core CPI up 3.8% year over year and services CPI up 5% year over year.

Cost of living pressures remain, with food prices on the up and pump prices still on the rise as "bad news," stated Raja. With food inflation topping the Bank of England's forecasts, concerns around inflation expectations will be hard to shake off for the Monetary Policy Committee.

There's more upward momentum left, he added. Deutsche Bank expects inflation to push a little higher to near 4% year over year in September, before slowly grinding its way lower through the course of the year.

What's more, Raja thinks that the path to 2% CPI next year looks narrower. Administrative price rises next year could leave CPI tracking a touch stronger than the bank's roughly 2.5% year-over-year forecast.

Deutsche Bank forecasts CPI to sustainably return to target around 2027. Indeed, developments in the labor market point to wage disinflation and weaker price pass-through over the next year or so. But these effects will take time to filter through into the price data.

The MPC may look for more patience going forward as it grapples with an uncomfortable trade-off: high near-term price momentum versus sluggish labour market data.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.

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