UK CPI - Temporary Relief Only

UK inflation fell to 2.8% in April, providing temporary relief, but MUFG expects it to bounce back to 4% by year-end due to energy price hikes and pipeline pressures.

Key Takeaways

• 1.UK headline inflation fell to 2.8% in April, primarily due to base effects and lower energy costs, beating consensus expectations.
• 2.The relief is expected to be temporary as MUFG forecasts CPI to rise to 4% by year-end due to pipeline pressures and an expected 10-15% increase in household energy prices in July.
• 3.Despite soft data providing some breathing space, the Bank of England is still projected to raise rates by 50bp this year, likely starting in July.

Table of Contents

• 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