(Bloomberg) -- The UK is less of an outlier in terms of its inflation rate than recent data and analysis would suggest, according to Panmure Gordon.

While both headline and core inflation remain higher than expected and the strongest in the Group of Seven nations, Panmure’s Chief Economist Simon French said the significance of energy bills in the UK is probabley underestimated by some commentators. 

“Much of the UK’s outlier status can be explained by energy bills alone — which are due to fall sharply from next month, and again in September,” said French in a note to clients Friday.

Read more: Larry Summers Sees UK Recession After ‘Historic Error’ on Brexit

The analysis will provide some provide some ammunition to the doves on the Bank of England’s Monetary Policy Committee. They’re arguing that the central bank already has lifted interest rates too high and that the full impact of higher borrowing costs will damage the economy in the months ahead. Last month, Swati Dhingra and Silvana Tenreyro voted to keep interest rates unchanged.

For now, inflation readings above expectations and the BOE’s forecasts have spurred bets that the majority of policy makers will keep lifting the key rate through the summer.

Panmure’s note also challenges market expectations that the BOE’s base rate will need to rise to 5.5%. Traders ramped up their bets after official inflation data last week surprised to the upside, pushing up the cost of mortgages and other loans.

“The last week has seen UK inflation exceptionalism become a consensus view with a damaging blowback for the UK economy, interest rate path and capital markets,” French said.

He said that while prices in nine of the UK’s 12 major categories in the Consumer Prices Index since the start of 2020 have seen greater inflation than the eurozone or US average, the largest spread is in the housing services, water, electricity and fuel component. Those account for almost a seventh of the UK CPI basket.

“If UK CPI is to re-converge its price dynamics with those of other countries, it is this category item that will do most of the heavy lifting,” French said. 

Read more: London Leads Record Increase in Rental Costs Across UK

While Panmure does expect inflation to drop sharply from July, French said he still believed that inflation “would prove stick above 2% for a protracted period,” and that interest rates would peak at 5%.

Read more: 

  • BOE’s Mann Says Pandemic-Era Savings Is Still Fuelling Inflation
  • BOE’s Haskel Signals Support for More UK Interest Rate Hikes
  • BOE Governor Says UK Inflation Is Taking Longer to Come Down

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