UK June CPI shows cooling headline inflation but sticky core and services measures, prompting markets to reassess BoE tightening expectations.
The British Pound (GBP) fell against the US Dollar (USD) and Euro (EUR) after UK June Consumer Price Index (CPI) data showed mixed signals. Headline inflation dropped to 2.6% year-over-year, below consensus expectations of 2.7%, while core CPI remained at 2.6%, slightly above forecasts.
Services inflation matched the Bank of England’s (BoE) projection at 3.6% but exceeded market expectations of 3.5%. Despite cooling wage growth, sticky core and services inflation kept rate cut bets alive. Markets currently price a 25bps BoE hike in November and 75bps of tightening over the next year, pushing the policy rate above the BoE’s neutral range.
Analysts warn that restrictive policy in a below-potential UK economy could lead to a downward shift in BoE rate expectations, weighing further on GBP.