Services inflation falls in July to a two-year low • BoE’s interest rate cut prospects rise in September
The pound fell in the European market on Wednesday against a basket of global currencies, for the first time in the last six days against the US dollar, to give up a two-week high, due to corrections and profit-taking activity, in addition to data below expectations on inflation in the British United Kingdom.
The data showed that inflationary pressures on monetary policymakers at the Bank of England continued to recede, raising the prospects of a British interest rate cut by about 25 basis points in September, for the second consecutive meeting.
Price outlook • The exchange rate of the British pound today: The pound fell against the dollar by about 0.4% to (1.2817 dollars), from the opening price of trading at (1.2863 dollars), and recorded the highest level today at (1.2869 dollars).
The pound ended Tuesday’s trading up 0.8% against the dollar, in its fifth consecutive daily gain, and hit a two-week high of $1.2873, thanks to weak producer price data in the United States.
The Office for National Statistics said the headline inflation rate in United Kingdom rose 2.2% year-on-year in July, below market expectations of a 2.3% rise, and the index recorded a 2.0% rise in June.
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UK inflation below July forecast
CPI core inflation rose 3.3% year-on-year in June, below market expectations of a 3.4% rise, and the previous reading recorded a rise of 3.5%.
The services consumer price index rose 5.2% in July, the lowest pace in two years, below market expectations of a 5.8% rise, and the index recorded a rise of 5.7% in June.
The data shows that inflationary pressures on monetary policymakers at the Bank of England continue to ease, with the bank expected to welcome the recent apparent slowdown in services inflation.
Following the above data, the pricing of the prospects of the Bank of England cutting British interest rates by about 25 points at the September meeting rose from 36% to 47%, and markets are expecting cuts in British interest rates by about 50 basis points before the end of this year.
At the August 1 meeting, the Bank of England cut British interest rates by about 25 basis points to the 5.00% range, in the first cut in British interest rates since March 2020 at the outbreak of the coronavirus pandemic.
At the previous meeting on June 20, the Bank of England fixed UK interest rates unchanged at 5.25%, the highest level since 2008, for the seventh consecutive meeting.
The Bank of England said: it was appropriate to keep monetary settings tight long enough for inflation risks to sustainably return to the 2% target over the medium term dissipate.
Economists at Capital Economics said: Today’s data may not fully ease the bank’s concerns about ongoing price pressures. It may not be enough to push back-to-back rate cuts in September.
Experts added :But this supports our view that consumer price inflation will return below the 2% target next year and that interest rates will fall further and faster than markets expect.
Experts explained: Today’s data opens the door to further UK interest rate cuts later in the year, which explains why the pound is currently weak.
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