UK inflation drops… but not as much as expected

Market reports
Thanim Islam
  • UK inflation back 0.25% hike in September
  • US retail sales illustrates resilience in the US economy
  • EU GDP to come in higher?


GBP was well supported throughout trading yesterday following the higher than expected wages numbers, with pricing for peak interest rates now at 6% as markets bet on another jumbo hike by the BoE this year.

US retail sales added to upbeat US data illustrating the resilience of consumers in the US economy. The data indicates that annualised 3rd quarter growth could rise to 3% - that’s up from recent estimates of 2.4% growth in the second quarter, and once again illustrating the relative outperformance of the US economy against its peers. Gains on the USD were short-lived however, with market flow favouring GBP following the wage numbers.


Market rates

* Daily move - against G10 rates at 7:30am, 16.08.23

** Indicative rates - interbank rates at 7:30am, 16.08.23

Data points


  • None today.

Our thoughts

UK inflation fell in July, however not as much as markets were anticipating. Headline CPI fell to 6.8% vs 6.7% expected, and core inflation remained at 6.9%. Looking into the numbers, the data shouldn’t be too concerning for the BoE as the unexpected pick on services inflation (down to higher social rents) isn’t as broad based as had been in previous months. Following on from yesterday's wage numbers, it seems a 0.25% rate hike in September looks to be cemented and this should keep GBP supported within the higher end of its recent ranges.

This morning we wait to see if Europe's GDP numbers for the second quarter can follow data from the UK and US in recent weeks, and come in higher than expected. Should it do so then we would expect the EUR to gain, as it would illustrate the ability for the economy to be able to absorb the recent run of higher interest rates by the ECB. Housing data and industrial production will be looked to for performance of the US economy.

Chart of the day

Big week for the UK with wages continuing to climb countered with inflation falling, though not as much expected. The data backs the idea of another 0.25% hike in September with an outside chance of a 0.5% hike being factored in – 30bps according to money markets. GBP should be supported following the data prints, but worth noting that we have another set of wage and inflation numbers before the BoE meeting in September.

Source: Bloomberg Finance L.P.

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