The United Kingdom, which has held the position of having the highest inflation among the world's major economies for a significant portion of the past two years, might witness a deceleration in the rate of price increases to below 2% sooner than both the United States and the euro area based on the consulting agency’s data.
Capital Economics reported that UK inflation could potentially decrease to 1.7% by April. In contrast, projections indicate that inflation may persist at 2.0% in the euro area and 2.6% in the United States.
In response to the situation, the Bank of England has communicated its commitment to maintaining high interest rates "for an extended period" as a preemptive measure against potential long-term economic issues resulting from an inflation surge, which reached 11% in October 2022. Despite this stance, investors are anticipating the possibility of the first rate cut in May, following the recent downturn in inflation.
According to the economists surveyed by Reuters, the headline inflation rate in Britain may decline to 3.8% in December from the 3.9% recorded in November when official data is disclosed next week.
Recent data releases have indicated an upswing in inflation rates in both the United States and the euro area for the previous month.
Despite projections of a potential rise in UK inflation in January, attributed partly to hikes in regulated energy tariffs, Capital Economics suggests that inflation will start receding thereafter, influenced by a notable surge in prices in early 2023.
"These drags aren't as powerful elsewhere," said the chief UK economist at Capital Paul Dales.
"If we’re right, then in April, inflation in the UK will be lower than in the US and the euro-zone for the first time in two years."
Core inflation may not fall as quickly as the headline rate and rising transport costs caused by tensions in the Red Sea pose risks to prices, Dales added. However, he predicts that the Bank of England will cut rates for the first time in June.
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