UK June inflation data undershoots forecasts, reducing near-term pressure on the Bank of England to tighten policy further.
EUR/GBP climbed to 0.8533 on Wednesday after UK inflation data eased more than expected, weakening the British Pound. June’s Consumer Price Index rose 0.1% month-on-month, matching consensus but slowing from May’s 0.2% gain, while annual inflation fell to 2.6% from 2.8%, below the 2.7% forecast.
Core inflation remained sticky at 2.6%, slightly above the 2.5% estimate, but cooling wage pressures and weak hiring reported Tuesday have dimmed expectations for an imminent Bank of England rate hike. Swaps markets now price a 25bps increase to 4.00% in November, with 75bps of tightening seen over the next year, though analysts warn restrictive policy risks stalling growth.
The Euro faces its own test Thursday with the European Central Bank’s policy decision, while geopolitical tensions in the Middle East threaten to push energy prices higher, complicating the inflation outlook.