UK CPI Forecasts

ATFX

Publish date: Wed, 14 Jul 2021, 05:30 PM

Widely anticipated UK CPI figures are expected to have a reading of 2.2% vs 2.1% which would be the highest reading since November 2018. While Core CPI which excludes the price of food, energy, and other volatile items is expected to remain the same as the month of May which was 2.0%.

The figure doesn't seem worrisome as the central bank has set its expectations for inflation to reach 2.5% by the end of this year especially with the easing of covid-19 measures and many factors that support price upswings in general. Hint, Oil prices surging to ultimate highs.

In the last reading for CPI figures, inflation unexpectedly jumped in May after the country reopened to go above its 2.0% target hitting 2.1%. However, despite inflation being relatively high compared to pre-pandemic levels, it's not yet close to the central bank's expectations and it's not comparable to the U.S. inflation figures which have definitely peaked way more.

Ahead of the figures, the GBP seems to be picking up its pace from its monthly low of 1.373 from its favorite 1.38 mark but now, once again the GBP is steady at levels of 1.386.

And with Andrew Bailey, Bank of England governor, latest speech at the Mansion House, where he indicated more than once that the economy is recovering well, and that “it's important not to overreact on temporarily strong growth and inflation”. It seems like the sterling priced in this speech ahead and is building up its bullish momentum for the next couple of days ahead of the CPI figures.

As much as the UK has increasing inflation figures and higher expectations for its upcoming reading, it is the summer season and Borris Johnson has just announced the ease of further restrictions, so people bought things, they booked their tickets so it wouldn't be a surprise if inflation exceeded forecasts. In Addition, there's still one more thing left for the central bank to do, which is to cut back on the monetary stimulus to control higher levels of inflation if we do get there by Wednesday. So If we do see another jump in June's figures it wouldn't really be unexpected.

Written by Nadia Amr, Market Analyst ATFX MENA (UAE)

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