The UK financial markets are bracing for the release of the July Consumer Price Index (CPI) report on Wednesday, which could play a pivotal role in shaping the Bank of England’s (BoE) next policy move. The data, due at 06:00 GMT, will be closely monitored as inflation trends remain central to interest rate decisions.
Inflation Outlook and Forecasts
Economists expect monthly CPI to dip by 0.1%, but the yearly figure is projected to rise to 3.7%—up from 3.6% in June and 3.4% in May. If confirmed, this would mark the highest inflation in nearly two years, keeping pressure on the BoE as its inflation target is just 2%.
The core CPI is forecast to remain steady at 3.7% year-on-year, signaling persistent underlying price pressures. This reinforces concerns that inflation remains “sticky” despite recent policy adjustments.
Bank of England’s Policy Dilemma
Earlier this month, the BoE cut rates by 25 basis points to 4%, marking one of the most divided policy meetings in the central bank’s history. Several members opposed the move, warning of upside risks to inflation. With headline inflation expected to rise further, markets are now questioning whether the BoE will be forced to pause its rate-cutting cycle sooner than expected.
Adding to the challenge, recent economic data has been stronger than anticipated. UK GDP growth for Q2 beat expectations, and unemployment claims fell, pointing to a resilient economy. Together, these factors suggest that further easing could be premature, strengthening the hawkish camp inside the BoE.
GBP/USD Market Impact
The GBP/USD pair has entered a mild corrective phase after rallying nearly 3% since the start of August, currently hovering below multi-week highs. Analysts note that a higher-than-expected CPI reading would reinforce Sterling’s strength by limiting the scope for BoE rate cuts, while a softer inflation print could trigger fresh selling pressure.
- Upside targets: If inflation data surprises to the upside, GBP/USD could test 1.3585–1.3600, with further gains toward 1.3680/1.3700 possible.
- Downside risks: On the other hand, a weaker CPI could drag the pair toward 1.3385 support, with deeper losses extending toward 1.3140–1.3130 and potentially the psychological 1.3000 level.
Market Sentiment Ahead of Release
Analysts at ING suggest that “sticky inflation” will likely keep Sterling supported in the short term, especially against the backdrop of expected US Federal Reserve easing in September. This policy divergence could underpin GBP/USD in the near term.
Similarly, FXStreet’s Pablo Piovano highlights that the pair’s bullish outlook remains intact as long as support levels hold. A decisive break above resistance would confirm renewed momentum for Sterling, while a downside break could shift focus back to broader corrective moves.
✅ In summary: The July UK CPI release will be a make-or-break moment for the Pound. A hotter reading may force the BoE to rethink its easing path, boosting Sterling, while softer inflation could revive expectations of further rate cuts and weigh on GBP/USD.
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