HG MARKETS:

The British Pound (GBP) advanced against major currencies on Wednesday after the United Kingdom’s Consumer Price Index (CPI) for July exceeded market expectations, reinforcing the outlook for a cautious monetary policy stance from the Bank of England (BoE).

Data released by the Office for National Statistics (ONS) showed that headline inflation rose 3.8% year-on-year, slightly above forecasts of 3.7% and higher than June’s 3.6% reading. The stronger-than-anticipated figures suggest continued inflationary pressures that could influence the BoE’s policy path.

Core CPI, which strips out food, energy, alcohol, and tobacco, also increased by 3.8% annually, edging up from 3.7% previously. On a monthly basis, headline CPI rose by 0.1%, defying expectations of a 0.1% decline.

Particularly notable was inflation in the services sector closely monitored by BoE policymakers, which accelerated to 5.0% year-on-year, compared to 4.7% in June.

Earlier this month, BoE Governor Andrew Bailey cautioned that elevated food and energy prices risk de-anchoring consumer inflation expectations. In its August policy meeting, the central bank raised its one-year forward CPI forecast to 2.7%, up from the prior projection of 2.4%.

At that same meeting, the BoE delivered a widely anticipated 25 basis-point rate cut, lowering borrowing costs to 4.0%. However, the decision reflected a narrow majority, underscoring divisions among policymakers over the pace of easing.

Looking ahead, a Reuters poll conducted between August 13–19 indicated that the BoE is expected to cut rates only once more before year-end, as persistent inflation may limit the central bank’s room for aggressive monetary loosening.

Beyond immediate policy implications, the stronger inflation data also underscores broader challenges facing the UK economy. Elevated price pressures, particularly in the services sector, could weigh on consumer spending power and slow economic growth, even as they support the currency in the short term. This delicate balance between stabilizing inflation and sustaining growth will likely remain at the center of the BoE’s policy considerations in the months ahead.