UK CPI set to edge higher in December, increasing BoE hold rate bets
- The UK’s ONR Office publishes the December CPI data on Wednesday.
- The UK headline inflation is expected to have ticked higher to 3.3%.
- Core inflation is seen as sticky above 3.0% from a year earlier.
The UK Office for National Statistics (ONS) will release the December Consumer Price Index (CPI) figures on Wednesday at 07:00 GMT, a print that will matter for markets. Consensus expectations point to a modest re-acceleration in inflation pressures.
UK consumer inflation remains one of the most important inputs for the Bank of England (BoE) and typically carries real weight for the British Pound (GBP). With the Monetary Policy Committee (MPC) meeting on February 5, investors broadly expect the ‘Old Lady’ to keep the bank rate unchanged at 3.75%, but this week’s data will help shape the tone of that decision.
What to expect from the next UK inflation report?
Headline UK CPI is expected to have edged higher to 3.3% in the year to December, up from 3.2% in November. On a monthly basis, inflation is seen rebounding by 0.4%, reversing the 0.2% decline recorded the previous month.
Core inflation, which strips out the more volatile food and energy components and is therefore more closely watched by the BoE, is forecast to have remained unchanged at 3.2% on an annual basis. From a month earlier, core CPI is expected to have accelerated to 0.3%, after slipping 0.2% in November.
How will the UK CPI data affect GBP/USD?
The BoE’s rate-setting MPC voted 5–4 to cut the bank rate by 25 basis points to 3.75% in December, its fourth reduction in 2025. While the decision acknowledged softer inflation dynamics and early signs of cooling in the labour market, the Committee stressed that any further easing would be gradual.
The December Decision Maker Panel (DMP) survey did little to challenge the prevailing narrative around the bank’s rate outlook. In short, it leaves the status quo firmly in place, with persistent wage pressures limiting the scope for any meaningful repricing at the front end of the curve.
One-year-ahead wage expectations edged up to 3.7% from 3.6%, while realised pay growth over the past year remains stuck in the mid-4% range. Both metrics continue to sit uncomfortably above levels consistent with inflation returning sustainably to target.
The bottom line is that the survey fails to move the needle, reinforcing the case against bringing forward rate cuts.
So far, implied rates pencil in just over 42 basis points of easing this year, while the BoE is widely anticipated to maintain its policy rate unchanged next month.
Back to technicals, Senior Analyst at FXStreet, Pablo Piovano, notes that GBP/USD appears to have encountered some contention at its current yearly lows near 1.3340 (January 19). “Further weakness from here could expose a move toward the interim support at the 55-day SMA at 1.3309 ahead of the December floor at 1.3179 (December 2),” Piovano adds.
“In case bulls regain the upper hand, the YTD ceiling at 1.3567 (January 6) should emerge as the immediate up barrier. North from here, there are no resistance levels of note until the September 2025 high at 1.3726 (September 17),” he concludes.
Piovano also points out that momentum indicators remain bullish for now, as the Relative Strength Index (RSI) bounces to around 54 and the Average Directional Index (ADX) near 20 suggests a fairly firm trend.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.Last release: Wed Dec 17, 2025 07:00
Frequency: Monthly
Actual: 3.2%
Consensus: 3.5%
Previous: 3.6%
Source: Office for National Statistics
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
Author
FXStreet Team
FXStreet
