British Inflation Surprises and Rises: 2.6% YoY

The annual Consumer Price Index in the UK rose for a change: from 2.4% to 2.6% in July. Early expectations stood on 2.3%.

The target of the Bank of England is 1-3%. CPI returned to the 3% level in April after many months of higher price rises. It is still within target.

GBP/USD was trading just above 1.57 early in the day and moved a bit higher to 1.5720 just before the release.

Also accompanying indicators surprised: Core CPI rose to an annual level of 2.3% and the Retail Price Index (RPI) jumped to 3.2%.

Core CPI was expected to remain unchanged at 2.1%. The RPI was also expected to remain at the same level as last month: 2.8%. HPI, which is usually dismissed due to other figures, remained unchanged at 2.3% and didn’t rise to 2.7% as expected.

For more on sterling, see the GBPUSD prediction.

This lowers the already low chances of a rate cut: BOE Governor Mervyn King played down this option recently. However, having inflation in target allows the central bank to provide more monetary stimulus through its Asset Purchase Facility program (QE).

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