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BoA raises short-term UK CPI forecasts

By Alexander Bueso

Date: Wednesday 06 Oct 2021

BoA raises short-term UK CPI forecasts

(Sharecast News) - Economists at Bank of America bumped up their consumer price forecasts for the UK on the back of the recent jump in energy quotes although they still assumed that inflation would dip below Bank's 2.0% target in April 2023 temporarily.
The annual rate of consumer price inflation was now seen peaking at 5.1% in April and coming in at 5.1% for 2021 and 3.7% in 2022.

Their new forecasts were five and 63 basis points higher than before.

BoA also revised up its forecast for the increase in the utility price cap that was due to come into effect in April 2022 from 25% to 45%.

They also factored in some increase in UK petrol prices on account of recent panic buying, which they said would push CPI up to 4.0% in October and 4.4% in November, against the annual rates of 3.85% and 4.2% that they had previously projected.

Looking further out however, they expected inflation to drop "sharply" in the back half of 2022, helped by a utility price cut of 12% in October 2022 alongside negative base effects.

The latter were expected to become even more negative by April 2023 when CPI was seen temporarily dipping below 2.0%.

A "large" risk to their forecast nonetheless was government intervention, although they believed fiscal transfers to consumers would be the preferred route of lawmakers rather than direct action on prices.

"On the other hand, in the near-term we are concerned about potential goods prices rising running up to Christmas."

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