On Wednesday the British pound showed limited movement and GBP/USD traded at about 1.2844, down 0.15% for the day in the European session.
The UK’s headline inflation in July rose 2.2% y/y, up from June’s 2% but lower than the 2.3% market estimate. Services inflation dropped to 5.2%, the lowest since Jun. 2022 and much lower than the BoE’s expected 5.6%.
In July, inflation fell 0.2% monthly, down from June’s 0.1% and the first drop in 6 months. Core inflation dropped to 3.3% from 3.5% y/y and to 0.1% from 0.2% monthly, also lower than expectations.
The cool inflation report supports another rate cut in Sept., which money markets are pricing in at 45%. The BoE cut rates by a quarter-point to 5% on August 1. The BoE’s next meeting will be on September 19.
Tuesday’s UK employment report was mixed. The unemployment rate dropped to 4.2% in the Q2, down from 4.4% in the first quarter and wage growth with bonuses eased to 5.4%, from the revised 5.8% y/y, the lowest level in 2 years. This was much higher than the 4.6% market consensus and also much higher than the inflation rate.
Unemployment claims rose to 135K in July, much higher than the market estimate of 36.2K.
