Hot UK inflation creates more questions on interest rate cuts

Daily Currency Update

The British pound has had a further boost this morning with the UK’s inflation numbers coming in above expectation and dampening the odds of another interest rate cut from the Bank of England in 2025. Sterling was able to improve against the EUR, USD and other major currencies after CPI data showed an increase to 3.8% year on year in July, up from 3.6% in June and exceeding the 3.7% expectation.

It seems services inflation was the main culprit responsible for the uplift as prices in the service sector rose from 4.7% to 5%. A constant thorn in the Bank of England’s plan to reduce interest rates and get inflation back to its 2% target.

Questions over the central banks decision to cut rates will continue to come and the pressure on UK consumers continues to grow however as a result UK bond yields have risen, supporting the pound in the process.

The Pound to Euro exchange rate moved 0.30% higher on the move whilst GBP/USD saw a 0.2% jump. As well as services inflation, food price increases continues to play a part also with prices rising 4.9% from this time last year.

UK inflation is starting to look like an outlier amongst its peers. With inflation moving in the wrong direction, continued fiscal worries and another budget coming, confidence in the pound could start to dwindle.