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Investing.com -- Barclays (LON:BARC) updated its inflation forecasts for the United Kingdom (TADAWUL:4280) on Thursday, projecting higher rates for headline, core, and services inflation based on an analysis of April’s data.
The revisions include an anticipated peak for headline Consumer Price Index (CPI) inflation at 3.5% in September 2025, a slight increase from the previous forecast.
The forecast for 2025 has been adjusted to an average of 3.1% year-on-year, up from 3.0%, while the projection for 2026 remains at 1.9%.
The assessment by Barclays indicates a stronger services inflation rate than previously estimated, driven by increases in transport services, recreation, communications, and package holidays.
Despite some adjustments for temporary factors such as Easter, the forecast for services inflation over the next 12 months is between 0.4 and 0.5 percentage points higher than earlier predictions.
In contrast, core goods inflation was slightly weaker than expected, attributed to a structural pattern aligned with early 2021, before supply chain and energy price shocks.
Barclays also noted a positive surprise in the Food, Alcohol, and Tobacco (FAT) category, although this was partially attributed to stronger demand over the Easter period.
Consequently, the forecast for FAT inflation has been raised by 0.14 percentage points for the coming year.
Energy prices, particularly the energy price cap, have been marked to market, indicating a potential contraction in the third quarter that is more significant than previously assumed.
Barclays now forecasts a 7% month-on-month contraction rather than the 3.5% initially expected. This revision is supported by independent forecasts from Cornwall Insights, which also anticipates a 7% contraction in July.
Overall, the combined effect of these revisions results in an increase of 0.27 percentage points in the core CPI forecast over the next 12 months, with no change thereafter.
The headline CPI profile is expected to be between 0.08 and 0.17 percentage points higher over the same period, reflecting the impact of stronger-than-expected price level shocks from April’s data.
Barclays maintains that a loosening labor market and below-trend growth will likely lead to faster disinflation than the Bank of England expects once recent price level shifts have been fully incorporated into the annual calculation.