UK CPI: Temporary Relief Only

UK headline inflation dropped to 2.8% in April, but MUFG warns this relief is temporary and forecasts a rise back to 4.0% by year-end. Consequently, the Bank of England is still expected to raise rates by 50bp in 2026, likely starting in July.

Key Takeaways

• 1.Headline UK inflation fell to 2.8% in April, lower than the expected 3.0%, primarily due to base effects and energy policy.
• 2.The inflation slowdown is likely temporary, with MUFG forecasting a rise to 4.0% by year-end driven by energy price cap hikes and producer price pressures.
• 3.Despite the lower CPI data, the Bank of England is still expected to deliver 50bp of tightening this year, likely starting in July.

Table of Contents

• UK CPI - Temporary relief only
• Plenty of price pressures in the pipeline, despite good news on domestically generated inflation
• This week's data gives the BoE a little more breathing space – but we still expect 50bp of tightening this year
• Domestically-generated inflation eased in April...
• ...but there are plenty of pipeline risks
• Disclaimer