Recent data from the UK has shown that underlying price pressures remain strong, indicating that the Bank of England may delay cutting interest rates. British inflation reached its 2% target in May for the first time in almost three years, with services prices rising by 5.7%. This has led to a shift in market expectations, with only a 30% chance of a rate cut by August, down from 50% before the data was released.
Following the release of the data, the sterling rose, with the euro falling 0.20% to 84.32 pence against the pound. The pound itself increased by 0.16% to $1.2730. This shows that investors are adjusting their positions in response to the changing economic indicators.
Economists, such as Ruth Gregory from Capital Economics, are still discussing the possibility of a rate cut in August, depending on future data on services CPI inflation and wage growth. There is uncertainty about whether the Bank of England will follow through with its previous guidance and initiate a rate-cutting cycle. The upcoming general election on July 4 may also impact any significant changes to forward guidance.
Despite the strong data on wages and services inflation, analysts are still expecting the Bank of England to start easing its monetary policy in August. A Reuters poll of economists revealed that almost all of them anticipate at least one rate cut this year, reflecting the ongoing uncertainties in the global economy.
The UK inflation data has had a notable impact on currency markets, causing fluctuations in the value of the pound and euro. While the current outlook suggests a delay in interest rate cuts, there is still uncertainty about future monetary policy decisions by the Bank of England. Analysts and experts will continue to monitor economic indicators to assess the potential impact on currency markets.