DAVY VIEW

This morning’s UK consumer price inflation (CPI) result further weakens the case for easing this year until there is evidence that disinflation has resumed. Prices grew faster than consensus had forecast, and services inflation accelerated back to 5%. The Bank of England’s latest projection is that inflation will return to its 2% target by Q2 2027 – six years after core CPI was last at or below target. A change in forward guidance from the current bias to easing “gradually and carefully” is unlikely for now, but this could be necessary if disinflation does not resume before the end of the year.