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British Pound (GBP) Forecast: Mixed UK Inflation Sees Headline Beat While Core Dips


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Jul 20, 2022 | DailyFX
Warren Venketas, Analyst

POUND STERLING TALKING POINTS

  • GBP/USD unphased by mixed UK inflation.
  • 50bps almost a certainty in August BoE meet.
  • IG Client Sentiment favors short-term GBP upside.

The British Pound Continues to Consolidate at Low Levels

The pound was largely unphased by UK inflation data earlier this morning (see economic calendar below). The release had mixed results with headline inflation marginally exceeding expectations due to soaring fuel and food costs while core inflation dipped for the first time since July 2021.

GBP/USD ECONOMIC CALENDAR

uk inflation economic calendar

Source: DailyFX Economic Calendar

 

If we look at the UK inflation graphic below, forecasts are expectant of an energy and food price peak around October after which we should see a decline in headline numbers towards the latter part of 2022 and early 2023. This should theoretically decrease hawkish pressure on the Bank of England (BoE) however, these projections are highly dependent on the Russia/Ukraine situation which carries a significant amount of uncertainty.

UK INFLATION BREAKDOWN

UK inflation composition

Source: ING

Currently, money markets are pricing in roughly 50bps or the August interest rate decision with yesterday’s jobs and now today’s elevated inflation augmenting the aggressive bias.

BOE INTEREST RATE PROBABILITIES

BOE rate probabilities

Source: Refinitiv

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