British pound strengthens after CPI

The British pound edged closer to $1.35, remaining near its highest levels since 2022. This upward movement continued to benefit from two key factors: broad-based US dollar weakness and ongoing support from the latest UK inflation data, which indicated that price pressures remain elevated.

The annual inflation rate for May came in at 3.4%, aligning with market expectations and registering just slightly below April’s 3.5%. Notably, a recalculation revealed that the April figure would also have been 3.4% if not for an initial miscalculation in the Vehicle Excise Duty series.

This consistent, albeit slightly decelerating, inflation data reinforced market expectations that the Bank of England will opt to keep interest rates unchanged at its upcoming meeting on Thursday.

Despite this immediate stability, the persistent inflation figures still leave the door open for a potential 25 basis point cut in August, as the central bank navigates the delicate balance between controlling inflation and supporting economic growth.