UK inflation rose stronger than expected in October and again exceeded the Bank of England's 2% target. Underlying price growth gathered speed as well, indicating why the Bank of England is cautious about cutting interest rates.
The most recent Bank of England forecast and a Reuters economists’ poll pointed to a weaker CPI reading of 2.2%.
Inflation hit a six-month high and represented the biggest month-to-month rise in the annual CPI rate since inflation peaked in October 2022.
Services inflation, viewed by the Bank of England as a key indicator of domestic price pressures, rose to 5.0% in October from 4.9% in September, according to the Office for National Statistics.
Core inflation, excluding energy, food, alcohol and tobacco prices, increased to 3.3% from 3.2%.
The Bank of England said this month it expected headline inflation to rise to 2.4% and 2.5% in November and December. Price growth is likely to approach 3% in the second half of next year.
All of this suggests that interest rates may remain high for a longer period of time.
After the CPI report, investors started to price around 60 basis points of the Bank of England rate reductions by the end of 2025. Before the inflation data, investors were expecting about 65 basis points of cuts.
BoE Governor Andrew Bailey on Tuesday emphasized that borrowing costs are likely to decline only gradually.
The latest news is likely to push GBPUSD upwards, especially since the currency pair is long overdue for a technical correction, at least to the 1.27150 level. Another argument in favor GBPUSD’s upward movement is that the pair has now dropped to strong multi-month support, neutralizing the buyers’ last attempts.
The overall recommendation is to buy GBPUSD.
Profits should be taken at the level of 1.27150. A Stop loss could be set at the level of 1.25700.
The volume of the opened position should be set in such a way that the value of the possible loss, fixed with the help of a protective Stop loss order, is no more than 1% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
