Deutsche Bank forecasts a rise in UK headline CPI to 3.80% for October, driven by higher energy prices and tobacco duties, with expectations for further increases to 4.25% by early next year.
Deutsche Bank forecasts UK headline CPI rising to 3.80% y-o-y in October from 3.48% in September and close to 4.25% early next year. Sticky, rising inflation reduces the case for Bank of England rate cuts, which tends to support the pound. This is only a bank forecast, not the official data, so the effect remains tentative until the print confirms it.
With headline CPI forecast to jump to 3.80% y-o-y and head toward 4.25% early next year, gilt investors would demand higher compensation for persistent inflation, pushing yields up. As a forecast ahead of the data the move is only suggestive, and expectations may already partly price it in.
Deutsche Bank economists Sanjay Raja and Maui Brennan project UK headline inflation will climb to 3.80% in October, up from 3.48% in September. The firm expects price pressures to remain sticky, with headline CPI potentially reaching 4.25% early next year due to rising energy costs and increased tobacco and vape duties.
If inflation keeps climbing as Deutsche Bank expects, the Bank of England has less room to cut interest rates, and relatively higher rates usually support a currency.
No, it is Deutsche Bank's forecast for October CPI of 3.80% year-on-year; the official number is still pending.
Persistently higher inflation typically pushes gilt yields up, meaning gilt prices fall, if the forecast of 3.80% CPI and further gains toward 4.25% materialises.