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UK Inflation Drop Stalls in September

The latest UK CPI release today will make for a disappointing reading for the BoE. UK CPI was seen holding steady at 6.7% last month, while core fell marginally to 6.1% from 6.2% prior. Coming hot on the heels of the BoE holding rates steady, the data adds ambiguity back into the outlook. A sharp fall over the prior month led to the BoE pausing rate hikes for now. The prevailing view at the time was that with inflation now falling firmly, further hikes would likely be unnecessary.

Bullish GBP Risks

However, with today’s data showing that the drop in inflation has stalled for now, hawkish risks might well creep back in over the coming month ahead of the November meeting. An uptick in energy prices over the last few months has fuelled concerns of a fresh rise in inflation. With tensions in the Middle East now threatening to drive oil prices higher still, inflation may well pick up from this point, leading the BoE to tighten further in line with its data dependant stance. As such, GBP upside could well return near-term if traders start to get a sense that the BoE will tighten again.

Technical Views: GBPUSD

The heavy sell off we saw over August and September has stalled for now with the market breaking back above the 1.2171 level. While above here, price is potentially carving out a higher low against the October lows, suggesting room for a fresh push higher and a test of 1.2437 next. 

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