Citi: UK inflation data is expected to reaffirm the "perfect disinflation" view

Benjamin Nabarro, chief UK economist at Citi, pointed out that it is expected that the UK inflation data released today will once again confirm the "perfect disinflation" claim. We expect headline CPI to fall to 3.8% (3.7-3.8% range), core CPI to 4.9% (4.8-4.9% range) and services inflation to 6.0%. We continue to expect headline inflation in the UK to be below 2% from mid-Q2 onwards. The outlook for the UK economy this year is expected to be a three-way battle: perfect disinflation, a hard landing and persistent inflation. Recent data suggest that the latter is relatively unlikely, confirming the view that recent price increases are primarily a reflection of costs rather than inflationary shocks. But as wage growth and services inflation are likely to remain somewhat sticky, we think the MPC will remain cautious, which will increase the risk of a hard landing later this year.