UK CPI rises again, inches closer to 4% - Middle East Business News and Information
UK inflation for July comes in higher across the board, giving the pound a mid-week boost after some downside emerged earlier this week. Both headline and core CPI come in at 3.8%, above forecasts for 3.7%, whilst the monthly readings came in at 0.1% and 0.2% respectively.
Seasonal factors are likely contributing to the CPI uptick with increased travel and leisure demand putting upward pressure on prices. However, services inflation continues to be a persistent and sticky component of the UK's inflationary pressures. This sector remains a central focus, as domestic inflation has not subsided meaningfully despite weaker economic growth relative to regions like the U.S.
This renewed uptick in consumer prices puts more pressure on the Bank of England. The previous meeting highlighted the difficult task of steering monetary policy in the current economic environment, with an inconclusive vote leading to a second round of voting for the first time ever. In the end, the decision leaned towards a 25bps cut, but the margin was very slim, with four members still opting to keep rates unchanged.
This latest CPI reading may complicate things further, as rising inflation has been a key issue for the past few months. It is true that the GDP data came in stronger-than-expected last week, which may have eased some of the fears about stagflation, but sentiment around the UK economy remains fragile at a time when rates remain in restrictive territory, but inflation is proving hard to beat. For now, markets are pricing in just 13bps of easing from the BoE from here until the end of the year, which means not even one more 25bps cut is fully priced in right now. As a comparison, markets a pricing in two more 25bps from the Federal Reserve in the next quarter.
As for the pound, the latest CPI reading provides a short-term boost as it reinforces the UK's positive carry trade against other currencies if rates are kept high. However, sentiment will depend on how the outlook for the UK economy evolves, and persistent inflation is likely to become a detriment if growth can't keep up. GBP/USD is back above 1.35 with some positive momentum coming from the release this morning, however, with the dollar regaining some ground, the pair looks like it may continue to slide in the short-term, with the 1.36 resistance level still intact.
GBP/USD daily chart:
Past performance is not a reliable indicator of future results.
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UK CPI rises again, inches closer to 4% - Middle East Business News and Information
By Daniela Sabin Hathorn, senior market analyst at UK inflation for July comes in higher across the board, giving the pound a mid-week boost after some downside emerged earlier this week. Both headline and core CPI come in at 3.8%, above forecasts for 3.7%, whilst the monthly readings came in at 0.1% and 0.2% respectively. Seasonal factors are likely contributing to the CPI uptick with increased travel and leisure demand putting upward pressure on prices. However, services inflation continues to be a persistent and sticky component of the UK's inflationary pressures. This sector remains a central focus, as domestic inflation has not subsided meaningfully despite weaker economic growth relative to regions like the U.S. This renewed uptick in consumer prices puts more pressure on the Bank of England. The previous meeting highlighted the difficult task of steering monetary policy in the current economic environment, with an inconclusive vote leading to a second round of voting for the first time ever. In the end, the decision leaned towards a 25bps cut, but the margin was very slim, with four members still opting to keep rates unchanged. This latest CPI reading may complicate things further, as rising inflation has been a key issue for the past few months. It is true that the GDP data came in stronger-than-expected last week, which may have eased some of the fears about stagflation, but sentiment around the UK economy remains fragile at a time when rates remain in restrictive territory, but inflation is proving hard to beat. For now, markets are pricing in just 13bps of easing from the BoE from here until the end of the year, which means not even one more 25bps cut is fully priced in right now. As a comparison, markets a pricing in two more 25bps from the Federal Reserve in the next quarter. As for the pound, the latest CPI reading provides a short-term boost as it reinforces the UK's positive carry trade against other currencies if rates are kept high. However, sentiment will depend on how the outlook for the UK economy evolves, and persistent inflation is likely to become a detriment if growth can't keep up. GBP/USD is back above 1.35 with some positive momentum coming from the release this morning, however, with the dollar regaining some ground, the pair looks like it may continue to slide in the short-term, with the 1.36 resistance level still intact. GBP/USD daily chart: Past performance is not a reliable indicator of future results.
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