UK Data Preview: The Quest Continues

Research evidence excerpt

UK Data Preview: The Quest Continues

in sum, will Cultural services -0.10 4.58 -

Private rentals 0.15 3.28 -

push up on May inflation, in a reversal of April dynamics. Package holidays 0.28 0.91

Personal care services 0.30 3.92

Core goods 0.48 0.99 1.00

Core inflation | Services: Accommodation, we think, should provide a decent Food & NAB 0.34 2.68 3.50

Fuels -0.35 24.62 25.60

counter to air fares, with what we estimate to be ~10bp drag on services inflation. RPI 0.45 3.31 -

We stress that the ONS' methodological choices in the package holidays category Source: ONS, BoE, Morgan Stanley Research forecast

imply this item is unlikely to see a bounce-back following a very weak April. The

package holidays "price relative" for April (Apr-26 prices vs. Apr-25 prices) will

remain in the package holidays "basket" until January next year. We model prices 3%

higher in May 2026 vs. May 2025, which yields a package holidays index that, on our

construction, comes in at 0.28%M up on April. We expect underlying services

inflation to come in unchanged, at 3.8%Y.

We are particularly focused on the restaurant & cafes category. While we model

only a moderate further catering disinflation from here, our top-down model

suggest the sector has recently enjoyed disinflationary tailwinds from labour costs

and food PPI. These have not been particularly reflected in measured inflation. We

would have had more confidence around possible downside risks to our near-term

catering forecasts, had the UK's largest pub chain not just implemented their second

price hike of the year - albeit, on our tracking, a fairly moderate one, and set to be

reflected in the June CPI data. As we go into the busy summer season and the likely

inelastic demand around the World Cup, we think the sector is flexing whatever