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In encouraging news for British consumers, UK shop price inflation was seen falling to its lowest level in 10 months last month. The BRC shop price index fell to 6.9% from the prior month’s 7.6% level, offering hope that the surging food prices that have weighed on UK households over recent years are finally starting to abate. The data will certainly make a welcome reading for the BOE as it prepares to decide on monetary policy once again in the coming weeks.
 

BOE Expectations

On the back of the stickiness seen in the latest CPI reading and with UK wage growth seen rising again, traders have all but price in a further hike in September. However, with a further CPI reading to come ahead of that meeting, today’s data suggests there is some hope that we might see a fresh cooling of CPI.
 

CPI Still Key

In terms of swaying the BOE from hiking again, it would likely take a significant undershoot to secure that outcome. What looks more likely is that, if we do see a softer inflation reading, the BOE hikes again next month and then looks to pause on the back of that meeting. As such, GBP looks vulnerable to a correction lower near-term. On the other hand, if CPI remains strong, this will keep further tightening expectations in place.
 

Technical Views

GBPUSD

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The sell-off in GBPUSD has seen the market breaking down below the 1.2992 level as well as the rising trend line. Price is now testing below the 1.2659 level and, while below here, the focus is on a further push lower towards the 1.2437 level next in line with bearish momentum studies readings. 

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