BoA revises 2021 UK CPI forecast higher, but says higher inflation ‘transitory’

by | Jul 14, 2021

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Economists at Bank of America revised their forecast for UK inflation in 2021 upwards following a stronger-than-expected print on June consumer prices.
However, while they expected strength in goods’ prices to continue through the summer, they predicted that it would “fade” thereafter.

Hence, the acceleration in inflation would prove transitory.

The Bank of England on the other hand, some of whose top policymakers had already signalled that they would not look through stronger inflation, was set to turn more ‘hawkish’, they argued.

Indeed, in its most recent policy guidance, the BoE had said: “On one view, forthcoming data had the potential to provide an early indication of sustained economy-wide inflation pressures.”

Bank of America’s new forecasts for the annual gain in the Consumer Price Index and in the Retail Price Index were 3.3% and 2.0%, respectively.

Those projections were four and 11 basis points higher than previously.

Yet for 2022 BoA trimmed its forecast for CPI inflation by 10 basis points to 2.3%.

Earlier the same day, the Office for National Statistics reported that the annual rate of CPI had picked up from 2.1% in May to 2.5% for June.

The latter was 80 basis points higher than the BoE had projected in the May Inflation Report.

“Some rate setters will look through that. But the new guidance sentence suggests some will not. The inflation news = more hawkish BoE.”

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