The pound (GBP) attracted significant buying interest against other major currencies on Wednesday as the UK Consumer Price Index (CPI) data for July showed a larger-than-expected increase.

The Office for National Statistics (ONS) reported that headline inflation rose at an annual rate of 3.8%, faster than the 3.7% expected and the 3.6% in June, a key factor that will allow the Bank of England (BoE) to maintain its "gradual and cautious" monetary expansion guidance going forward.

Core CPI - which excludes volatile items such as food, energy, alcohol, and tobacco – grew at a faster rate of 3.8% annually, compared to the previous estimate and release of 3.7%. Monthly headline CPI rose by 0.1%, while deflation was expected at the same rate.

Inflation in the services sector, which is closely monitored by Bank of England (BoE) members, also accelerated, at 5.0% annually, compared to the previous figure of 4.7%.

At a policy meeting earlier this month, Bank of England Governor Andrew Bailey warned that rising food and energy prices would dampen consumer inflation expectations. The Bank of England also raised its one-year CPI forecast to 2.7% from 2.4%.

According to a Reuters poll conducted August 13-19, the Bank of England will only cut interest rates once in the remainder of the year. At its August policy meeting, the Bank of England lowered its benchmark lending rate by 25 basis points (bps) to 4%, in line with expectations, but with a narrow majority. (alg)

Source: FXstreet