UK April inflation fell more than expected, reducing pressure on the Bank of England to tighten policy further.
GBP/USD slipped below 1.3400 after UK inflation data undershot forecasts, easing expectations for Bank of England rate hikes. Headline CPI dropped to 2.8% year-over-year in April, the lowest in 13 months, down from 3.3% in March and below the BoE’s 3.1% projection.
Core inflation fell to 2.5%, the lowest since July 2021, while services CPI plunged to 3.2%, both below consensus estimates. The swaps market trimmed BoE tightening expectations to 66bps from 75bps, though the bank still views this as overly aggressive given a projected negative output gap in 2026.
Political uncertainty and potential downward adjustments to rate expectations may weigh further on the pound.