GBP/USD attempts recovery as UK CPI rises once again

UK inflation unexpectedly rose in June, with headline Consumer Price Index (CPI) climbing to 3.6% year-on-year, up from 3.4% in May. This marks the highest annual inflation rate since January 2024 and comes as a surprise to markets that were expecting a more stable print. Core inflation—which excludes food and energy—also edged higher to 3.7%, suggesting that price pressures are not only persisting but broadening across the economy.

A major contributor to the rise was food inflation, which surged to 4.5%, its fastest pace in four months. Transport costs, particularly motor fuel and airfares also added upward pressure. Fuel prices, although lower than last year, did not fall as sharply as they had during the same period in 2024. Services inflation, often seen as a proxy for domestic price trends, remained elevated at 4.7%, indicating that underlying inflationary pressures remain sticky.

The inflation surprise adds complexity to the Bank of England’s (BoE) rate path. The central bank has already implemented two rate cuts in 2025—bringing the benchmark rate from 4.75% to 4.25%—in an effort to support weakening growth. Despite inflation trending further away from the BoE's 2% target, market expectations for an August rate cut remain largely intact, with odds currently at 83%. However, this latest CPI print is likely to make policymakers more cautious about the pace of subsequent rate reductions. In short, a cut next month appears likely, but the trajectory beyond that is now more uncertain.

In response, the British pound regained some ground on Wednesday morning, with GBP/USD pushing back above 1.34. The pair has been under sustained pressure throughout July, weighed down by a broadly stronger U.S. dollar. So far, the month has shaped up to be the worst for GBP/USD since January, with the pair shedding 2.35% from recent highs.

From a technical standpoint, the reversal has now broken below the ascending trendline connecting a series of higher lows since January. This breach could indicate a wider sentiment change in GBP/USD, rather than just a technical correction. The attempt to break higher on Wednesday is likely to be short-lived, however a close above 1.3440 could reignite some bullish momentum.

GBP/USD daily chart

(Past performance is not a reliable indicator of future results)