Deutsche Bank’s Sanjay Raja expects UK CPI and RPI inflation to fall sharply at the start of 2026, with headline and core CPI both seen at 3% year-on-year in January. The bank projects inflation to move close to the Bank of England’s 2% target by Q2 2026, then remain range-bound between 2% and 2.5% through year-end, with some upside risks in services.

UK price outlook versus BoE projections

"On 17 February, the ONS will publish the first set of inflation data for 2026. The good news? After a run of largely encouraging data, we expect inflation to take a big step down to start the year. The bad news? We think inflation could be a touch stronger than the Bank of England expects."

"Where do we see inflation starting the year? For CPI, we see headline inflation dropping to 3% y-o-y (Dec-25: 3.4%). We also see core CPI landing at 3% y-o-y (Dec-25: 3.2% y-o-y). Services CPI we think will take a big step down as well, reaching 4.3% y-o-y (Dec-25: 4.5%). For RPI, we see price growth slowing to 3.8% y-o-y (Dec-25: 4.2%)."

"Looking ahead, we continue to think inflation will take a big step down through the first half of the year, landing a stone's throw away from the Bank's 2% target in Q2-26. Thereafter, a small increase in momentum is likely - but we expect inflation to be range-bound tracking between 2-2.5% y-o-y for the remainder of the year."

"Altogether, we see price momentum slowing from around 3% y-o-y in Q1-26 to just over 2% y-o-y in Q2-26. We expect small upward gyrations through the year but see price momentum staying rangebound between 2.2% y-o-y and 2.5% y-o-y."

"How do our projections compare to the Bank of England’s? On headline, core, core goods, services and food CPI, we think price momentum will be stronger across the board."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)