U.K. headline inflation likely to peak at around 3 pct in early 2018 on increased import prices

The consumer price inflation in the U.K. was just above zero one year ago. But recently, it has accelerated above 2 percent, whereas the core rate has risen sharply to just below 2 percent. Along with the sharp rises in prices of energy, the sharp depreciation of the British pound following the Brexit vote has been the main driver of inflation, noted Nordea Bank in a research report.

In the months ahead, increased import prices are expected to continue to feed through to consumers, pushing the consumer price inflation rate to a peak of about 3 percent at the beginning of next year, according to Nordea Bank.

This is likely to further hurt the real household spending power and contribute to the deceleration this year. However, weaker base effects and the likely gradual deceleration in economic growth are likely to push inflation back gradually towards the target rate of 2 percent.