UK CPI inflation climbs to 3.8% YoY in July vs. 3.7% forecast
- The United Kingdom's annual CPI rose 3.8% in July vs. 3.7% estimated.
- British inflation declined to 0.1% MoM in July vs. a -0.1% forecast.
- GBP/USD jumps to test 1.3500 after UK CPI inflation data.
The United Kingdom (UK) headline Consumer Price Index (CPI) rose at an annual rate of 3.8% in July after having increased by 3.6% in June, the data released by the Office for National Statistics (ONS) showed on Wednesday.
The market consensus was for a 3.7% growth in the reported period. The reading moves further away from the Bank of England’s (BoE) 2% inflation target.
The core CPI (excluding volatile food and energy items) rose 3.8% year-over-year (YoY) in the same period, compared to a 3.7% advance in June, while beating the expected 3.7% print.
Services inflation rose to 5% YoY in July vs. 4.7% in June.
Meanwhile, the monthly UK CPI inflation fell to 0.1% in July from 0.3% in June. The data beat the forecast of -0.1%.
GBP/USD reaction to the UK CPI inflation data
The UK CPI data lifted the Pound Sterling rebound, with GBP/USD up 0.04% higher on the day at 1.3496, as of writing.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | -0.01% | -0.03% | 0.03% | 0.16% | 1.20% | 0.07% | |
| EUR | -0.07% | -0.10% | -0.27% | -0.05% | 0.10% | 1.04% | -0.01% | |
| GBP | 0.00% | 0.10% | -0.12% | 0.04% | 0.13% | 1.04% | 0.09% | |
| JPY | 0.03% | 0.27% | 0.12% | 0.18% | 0.29% | 1.31% | 0.35% | |
| CAD | -0.03% | 0.05% | -0.04% | -0.18% | 0.15% | 1.17% | 0.06% | |
| AUD | -0.16% | -0.10% | -0.13% | -0.29% | -0.15% | 0.92% | -0.03% | |
| NZD | -1.20% | -1.04% | -1.04% | -1.31% | -1.17% | -0.92% | -1.02% | |
| CHF | -0.07% | 0.01% | -0.09% | -0.35% | -0.06% | 0.03% | 1.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
This section below was published at 02:15 GMT as a preview of the UK Consumer Price Index (CPI) inflation data.
- The United Kingdom’s Office for National Statistics will publish the July CPI data on Wednesday.
- Inflation, as measured by the CPI, is forecast to rise further above the BoE’s goal in July.
- The GBP/USD is going through a mild bearish correction ahead of the release.
The United Kingdom (UK) June Consumer Price Index (CPI) is scheduled for release on Wednesday at 06:00 GMT. The report, released by the Office for National Statistics (ONS), is closely watched amid the potential impact of inflation data on the Bank of England (BoE) monetary policy decisions.
Inflation in the UK, as measured by the CPI, is forecast to have contracted by 0.1% in July, although the annual figure is seen accelerating to 3.7% from 3.6% in June and 3.4% in May. The core CPI, on the other hand, is expected to have grown at an annual 3.7% rate, unchanged from the previous month.
What to expect from the next UK inflation report?
Consumer prices have been accelerating steadily over the last 11 months after bottoming with a 1.7% yearly inflation in September. Headline inflation is seen reaching its highest level in nearly two years, if the market consensus is met, pushing the yearly CPI to levels nearly twice the Bank of England’s (BoE) 2% target for price stability.
The BoE cut rates by 25 basis points to 4% in a dramatic meeting on August 7, which needed two rounds of voting for the first time in its 300 years of history, with some policymakers showing concerns about rising inflationary pressure. In this context, and with the bank’s forecasts pointing to a 4% yearly inflation in September, these numbers will only strengthen the hawks’ side, casting doubt about further rate cuts.
Later data have provided further reasons for a more hawkish policy stance. Preliminary Gross Domestic Product showed above-expectations growth in the second quarter, and unemployment claimants declined against expectations, which points to a resilient economy and strengthens the case for a more hawkish BoE stance.
Down to the GBP/USD pair, ING analyst Chris Turner sees UK inflation figures likely to support the Pound: "Some sticky UK inflation for July looks unlikely to alter the market's view of the BoE over the coming days. This should keep GBP/USD bid this week, where a break of 1.3585/3600 could see 1.3680/3700 by the end of the week."
How will the UK Consumer Price Index report affect GBP/USD?
Against this background, the risk is of a higher-than-expected UK CPI reading that would practically discard any further BoE rate cut in the coming months. This would highlight a positive monetary divergence with the Federal Reserve (Fed), which is expected to ease its monetary policy in September, and underpin demand for the Sterling.
A soft inflation reading, on the contrary, would keep hopes of at least one rate cut in 2025 alive, which might help the pair to extend its current corrective reaction.
The GBP/USD has been pulling back from multi-week highs heading into the CPI release, in a mild bearish correction after having rallied nearly 3% from August 1 lows. A combination of strong UK data and downbeat US figures, which have boosted expectations for Fed easing, fuelled Cable’s uptrend.
Pablo Piovano, senior analyst at FXStreet, sees the pair likely to resume its broader bullish trend in the near-term: “GBP/USD is expected to meet its next up barrier at its August top at 1.3594 (August 14). The surpassing of that level would pave the way for Cable to confront the weekly peak at 1.3588 (July 24), ahead of its 2025 ceiling at 1.3788 (July 1).
On the downside, Piovano points to the support area at 1.3385: “There is an interim support at the 100-day SMA at 1.3386, seconded by the August base of 1.3141 (August 1), which is closely followed by the May floor at 1.3139 (May 12). A breach below the latter would shift focus to the psychological 1.3000 threshold.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
FXStreet Team
FXStreet
