Morning from Europe!

The UK CPI details have aligned closely with our forecast, with the figures reflecting our predictions almost precisely.

The core and services sectors continue to drive the “upside surprise,” in contrast to the ongoing deflation in goods. Specifically, services recorded a monthly increase of 0.51%, which is approximately 11-12 basis points higher than the consensus. It’s crucial to note the significant impact of the -1.44% year-over-year decline in goods prices on the UK’s disinflation process, especially when compared to the inflation numbers in the EU and US. However, this trend is expected to reverse in the second half of the year, putting the Bank of England in a more challenging position than its counterparts.

Consequently, a rate cut in August is very unlikely.

Chart 1a: UK CPI details

Chart 1b: Goods versus Services inflation in the UK