The Office for National Statistics (ONS) will release the UK Consumer Price Index (CPI) data for October on Wednesday at 07:00 GMT, offering critical insights into the nation’s inflation trajectory and the Bank of England‘s (BoE) potential course on interest rates.
What to Expect From the October Inflation Report?
Analysts anticipate the UK’s annual CPI will rise to 2.2% in October, up from 1.7% in September, surpassing the BoE’s 2.0% target. Core CPI inflation is expected to dip slightly to 3.1% year-on-year (YoY), down from 3.2% in September.
A Bloomberg survey suggests that inflation in services may ease marginally to 4.8% in October, compared to 4.9% in September. The BoE had previously projected the headline CPI at 2.2% and the services CPI at 5.0% for the month.
On a monthly basis, UK CPI is predicted to increase by 0.5%, up from a flat reading in September.
Societe Generale analysts forecast that higher utility prices and base effects will drive headline inflation back above the target, while services inflation could rise slightly to 5.0%.
Impact on GBP/USD
The Bank of England’s November 7 rate cut by 25 basis points (bps) to 4.75% was accompanied by a cautious stance on future rate reductions. The BoE reiterated its commitment to maintaining restrictive rates until inflation sustainably returns to its 2.0% target.
Governor Andrew Bailey also highlighted that tax hikes proposed by the Labour government are likely to fuel inflationary pressures, aligning with the central bank’s gradual approach to rate easing.
As the UK inflation report approaches, it will be pivotal in determining whether the BoE will pause its rate cuts after its second reduction since 2020.
A stronger-than-expected inflation report could lead to increased expectations for a BoE rate pause, supporting the Pound Sterling and sparking a potential recovery for GBP/USD from recent six-week lows. Conversely, weaker-than-expected inflation figures could push GBP/USD toward the 1.2500 level.
FXStreet’s Dhwani Mehta notes that while GBP/USD has shown signs of recovery, technical indicators suggest downside risks remain. The pair could rise toward the 1.2750 level, with further resistance at 1.2820. However, a drop below 1.2597 could test the 1.2500 threshold.
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