UK Core Inflation Rate Drops to 3.3% in July Raising Bets on a BoE Rate Cut

UK Consumer Price Inflation Report for July 2024

On Wednesday, August 14, the UK Inflation Report drew significant investor interest following UK labor market data on Tuesday, August 13.

The UK core annual inflation rate fell from 3.5% in June to 3.3% in July, sparking investor bets on a Q4 2024 BoE rate cut.

According to the Office for National Statistics, several notable trends emerged:

• The Consumer Prices Index, including owner-occupier housing costs (CPIH), rose by 3.1% in the 12 months to July, up from 2.8% in June.
• The UK annual inflation rate increased from 2.0% in June to 2.2% in July

However,

• The annual Core CPIH (excluding energy, food, alcohol, and tobacco) rose by 3.3% in July, down from 3.5% in June.
• The CPIH services annual rate declined from 5.7% in June to 5.2% in July.

The main contributors,

• Housing and household services saw the largest upward contribution, with inflation rising from 2.3% in June to 3.7% in July.
• The largest downward contribution came from restaurants and hotels, with inflation falling from 6.3% in June to 4.9% in July.

Bank of England Interest Rate Path

The softer core inflation and services inflation rates could raise investor expectations of a Q4 2024 Bank of England rate cut.

However, the unexpected fall in the UK unemployment rate and the rise in headline inflation could leave the BoE in a holding pattern. Tighter UK labor market conditions may support wage growth, possibly increasing disposable income and consumer spending. Higher consumer spending trends could fuel demand-driven inflation.

On Friday, August 16, UK retail sales figures could give investors further insights into the demand environment amid ongoing policy uncertainty.

GBP/USD Reaction to the July UK Inflation Report

Before the UK inflation report, the GBP/USD fell to a low of $1.28495 before climbing to a high of $1.28682.

Immediately following the release of the inflation data, the GBP/USD tumbled from $1.28608 to a low of $1.28151.

On Wednesday, August 14, the GBP/USD was down 0.19% to $1.28353.

Up Next

Later in the session on Wednesday, the highly anticipated US CPI Report will put the Fed under the spotlight.

Softer-than-expected inflation numbers could cement investor bets on multiple 2024 Fed rate cuts, possibly fueling a GBP/USD rebound.