The pound (GBP) attracted buying interest against other major currencies on Wednesday (July 16th) following the release of higher-than-expected UK Consumer Price Index (CPI) data for June.

The Office for National Statistics (ONS) reported that headline inflation rose to 3.6% year-on-year, the highest level since January 2024. Economists had expected a steady 3.4% growth. Core CPI – which excludes volatile items such as food, energy, alcohol, and tobacco – rose 3.7%, faster than expectations and the previous figure of 3.5%. On a monthly basis, headline CPI grew by 0.3%, also faster than expectations and the previous figure of 0.2%.

Meanwhile, inflation in the services sector, an indicator closely watched by Bank of England (BoE) officials, rose steadily to 4.7%.

Signs of rising price pressures should prompt the Bank of England (BoE) to maintain a tight monetary policy stance. However, the Bank of England may need to navigate a delicate balancing act when discussing interest rates at its August monetary policy meeting amid rising price pressures and cooling labor market conditions.

Higher-than-expected UK inflation data is expected to force the market to reconsider expectations of a BoE rate cut for the remainder of the year. Ahead of the UK CPI data, traders were increasingly confident that the central bank would cut interest rates at its policy meeting next month.

For fresh clues on the state of the UK labor market, investors are awaiting employment data for the three months ending in May, due to be released on Thursday.

Exchequer Rachel Reeves' increase in employer contributions to the Social Security scheme has led to a slowdown in hiring. Recent surveys from the Confederation of Recruitment and Employment and accountancy firm KPMG have suggested that the availability of individuals for work has increased significantly. (alg)

Source: Fxstreet