18/09/24

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The UK is projected to experience a consistent inflation rate, with the Consumer Price Index (CPI) anticipated to rise by 2.2% for the year leading to August. As the Bank of England prepares to announce its monetary policy decision on Thursday, the Pound Sterling exhibits a bullish trend that could see it exceed the 1.3300 level.

The Office for National Statistics (ONS) is set to disclose August’s CPI figures soon. Inflation, represented by the CPI, plays a crucial role in shaping the Bank of England’s monetary policy, making these data vital to the movement of the Pound Sterling. In its last policy meeting, the Bank of England lowered its benchmark interest rate by 25 basis points to 5%, a choice supported narrowly by the Monetary Policy Committee. Despite expectations surrounding this announcement, the Pound Sterling faced a decline against the U.S. dollar, dropping to a low of 1.2664 shortly thereafter.

CPI figures are expected to reflect a stable annual increase of 2.2% in August, maintaining the same level recorded in July. Additionally, the core inflation rate is predicted to rise to 3.5%, a slight increase compared to the previous month. Monthly CPI is also set to show growth, anticipated at 0.3%, following a decline of 0.2% in July.

As the monetary policy announcement draws near, market speculation suggests that the Bank of England might maintain current interest rates before potentially adjusting its stance in November. Current forecasts indicate inflation may reach 2.75% in the coming months, eventually tapering below the 2% target by 2025. Although the UK has recently emerged from a technical recession, economic growth remains tepid, raising concerns about potential setbacks. Any significant deviation from expected CPI figures could influence the Pound Sterling, but prevailing forecasts suggest limited volatility, with no expected rate cuts in the imminent policy meeting.

The ONS will release CPI data Wednesday at 06:00 GMT. While headlining inflation stays near the central bank’s target, persistent inflation in services, which has exceeded 5%, could impact market reactions. A slight increase in CPI could signal future rate cuts, but a disappointing result might spark expectations for more aggressive measures, potentially leading to additional selling pressure on the Pound Sterling.