UK: Expect a decline in inflation to 0.4% y/y - TDS

Research Team at TDS, suggests that renewed competition in the supermarket sector and lower consumer energy prices, despite the sharp depreciation of GBP in July, should lead to a downside surprise in UK’s headline inflation.

Key Quotes

“We expect a decline in inflation to 0.4% y/y vs consensus of 0.5% and the Bank of England’s recent forecast of 0.6% y/y. We see core inflation decelerating slightly to 1.3% from 1.4% in June (consensus: 1.4%).

The second BoE QE operation in the 15+ year Gilt bucket also takes place. Last week’s operation was only 96% covered as sellers were hesitant to part with their holdings. The BoE will want to avoid a second shortfall, so will likely buy above market value once again to secure it meets its weekly buying amount - we expect the operation to be fully covered. Monday’s short-dated gilt purchases were broadly in line with last week’s results.”