The UK inflation rate persists stubbornly, influencing expectations for BoE interest rates and the trajectory of the Pound Sterling.

GBPUSD News

The Pound Sterling saw a limited strengthening in Wednesday's (17/April) trading, bolstered by better-than-expected UK inflation data. GBP/USD could find solid support around the 1.2450 mark, while GBP/JPY edged towards the 192.50s, and EUR/GBP maintained stability around 0.8550.

In March 2024, UK consumer inflation saw a 3.2% increase year-on-year, marking a slight deceleration from February's 3.4% rate yet surpassing the consensus estimate of 3.1%.

Core goods inflation moderated to 4.2% year-on-year, a less significant drop than the anticipated 4.1%, underscoring persistent inflationary pressures within the UK economy. Notably, services CPI, a key metric for the Bank of England, only dipped marginally from 6.1% to 6.0%, surpassing both consensus and the BoE's projections of 5.8%. Consequently, experts argue that the Bank of England (BoE) will be reluctant to cut interest rates in June.

"Services CPI – which is what the Bank of England is mostly looking at – only slowed from 6.1% to 6.0%, against consensus and the BoE itself projections for 5.8%," says Francesco Pesole, FX Strategist at ING Bank, "Along with yesterday's stickier-than-expected wage figures, it is looking increasingly likely that the first rate BoE cut will only come in August."

Market sentiment now leans towards expectations of an initial BoE interest rate reduction in August, with a possibility of further cuts starting in September and a minority viewpoint even suggesting no action until November.

This stance positions the BoE as more hawkish than the ECB but more dovish than the Fed, with market consensus projecting interest rate cuts by the ECB in June and the Federal Reserve in the fourth quarter.