UK Inflation has jumped back above 2% as expected, however it hasn’t climbed as much with headline numbers showing inflation at 2.2%. The dilemma facing the Bank of England over the past few weeks has been how many more rate cuts to implement, and when. But with inflation coming in lower than the projected 2.3%, it has now paved the way for the central bank to progress with their decisions. Markets are now pricing in a 2nd consecutive cut in September to 45%, a notable increase from just a 36% possibility yesterday. The main reason why we have seen GBP drop back off again against the likes of The Euro & USD.
Although energy prices as a whole are coming down, they are still dropping by less than a year ago which has led to inflation ticking back up again. But again with inflation overall still coming below the projected 2.3%, it looks like services inflation has played a major part in this with the headline figure dropping to a two-year low of 5.2%. Much more than the expected 5.7%. It’s now widely expected that the Bank of England move forward with a minimum of 2-3 rate cuts by the end of the year.
Sticking with inflation, we have America’s inflation for July expected out this afternoon. Again, it’s widely anticipated that their inflation will have dropped below 3%. No doubt this will further force The Federal Reserve’s hands to now move forward with rate cuts and join the trend of central banks globally. The Federal Reserve have been extremely resilient with making their first move but with The Reserve Bank of New Zealand surprising markets and also reducing interest rates in the early hours of this morning, any downward movement with headline inflation will pile the pressure on for a rate cut in September.
GBP/EUR 1.1653 GBP/USD 1.2829 GBP/AED 4.7039
GBP/AUD 1.9365 GBP/CHF 1.1076 GBP/CAD 1.7593
GBP/NZD 2.1266 EUR/USD 1.0996 GBP/ZAR 23.125