UK Core Inflation Rises to 3.6% in August Sinking BoE Rate Cut Hopes

According to the Office for National Statistics:

The UK annual inflation rate remained steady at 2.2% in August.
The Consumer Prices Index, including owner-occupier housing costs (CPIH), rose by 3.1% in the 12 months to August, unchanged from July.
The Core CPIH (excluding energy, food, alcohol, and tobacco) was up 4.3% in the 12 months to August 2024, up from 4.1% in July.
The CPIH services annual rate increased from 5.7% in July to 5.9% in August.
The largest contribution came from airfares, countering downward contributions from motor fuels, restaurants, and hotels.

Bank of England Interest Rate Path

Ahead of the inflation numbers, the consensus was for the Bank of England to hold interest rates steady at 5.0%.

The unexpected increase in the core inflation rate to 3.6% will likely leave the Bank of England in a holding pattern. Considering the August inflation numbers, Friday’s retail sales figures are now crucial. Strong UK retail sales figures could fuel demand-driven inflation, possibly delaying a BoE rate cut in Q4 2024.

GBP/USD Reaction to the July UK Inflation Report

Ahead of the UK inflation report, the GBP/USD fell to a low of $1.31517 before climbing to a high of $1.31722.

However, immediately after the release of the inflation data, the GBP/USD rallied from $1.31573 to a high of $1.31783.

On Wednesday, September 18, the GBP/USD was up 0.10% to $1.31740.