UK CPI Preview: Forecasts from four major banks, sharp decline in inflation

We expect UK headline inflation to take another step down in February to 3.4% YoY, thus leaving it a touch below the Bank of England's forecast of 3.5% YoY. Core inflation will likely also fall quite a bit this month, we forecast a 0.6ppts decline to 4.5% YoY, which would be the lowest year-on-year rate since January 2022. We expect services inflation at 6.0%, 0.1ppts below the MPC's forecast. Our unrounded forecasts for headline/core are 3.43%/4.46%, so we see risks skewed to the upside for headline inflation but to the downside for core. Overall, barring any major surprises to this month's data, headline inflation is still set to fall below target in April and remain below target for the rest of the year.

We expect a sizeable move lower, including the headline CPI slowing to 3.4% (vs. 4% in January) and core to 4.5% (5.1%).

After a three-month period of core being stuck at 5.1%, we expect a sharp 0.6pp decline in February to 4.5% YoY, its lowest rate in two years. This decline should contribute to a 0.6pp fall in headline inflation to 3.4% YoY. 

CPI Inflation, February – Citi Forecast 3.4% YoY, Prior 4.0% YoY; CPI Core, February – Citi Forecast 4.4% YoY, Prior 5.1% YoY (goods prices still subdued).