Deutsche Bank is warning of persistent inflation pressures in the UK economy extending through the end of the decade. The bank’s economist Sanjay Raja forecasts May headline CPI will rise to 3.01 percent year-on-year, significantly above the Bank of England’s 2 percent target, with core inflation reaching 2.72 percent and services inflation hitting 3.65 percent. Deutsche Bank projects overall CPI will average 3.1 percent throughout 2025 before gradually declining to 2.6 percent in 2026 and 2.3 percent by 2028. Critically, the bank emphasizes that inflation risks remain tilted to the upside, suggesting actual figures could run hotter than these already elevated projections. The outlook complicates the Bank of England’s monetary policy calculus and may delay anticipated rate cuts, directly impacting sterling valuations and gilt yields. Traders should prepare for extended higher-rate environment affecting UK assets.
FXnCO Insight
Position for prolonged UK rate elevation with stubborn inflation likely keeping BoE hawkish longer than markets currently price in.
Source: FXStreet