GBP/USD: UK inflation at a new 40-year high
The data released today (at 06:00 GMT) confirmed the acceleration of inflation in the UK. According to data released by the Office for National Statistics, annual inflation jumped to 10.1% in July, a new 40-year high, from an expected 9.8% and after rising 9.4% in June. Core inflation (excluding volatile food and energy products) rose to 6.2% y/y, against 5.8% in June and a forecast of an increase to 5.9%.
GBP/USD rebounded to an intraday high of 1.2142 following this release, but then declined, dropping to 1.2100 at the time of this posting. In general, there is a downward trend in the pair, taking into account also the renewed growth of the dollar.
It is clear that despite aggressive interest rate hikes, the Bank of England is still unable to contain high and accelerating inflation.
Rising prices create additional pressure on the economy and the standard of living of citizens, which can negatively affect consumer demand and, accordingly, GDP (most of the country's GDP is domestic consumer demand).
Probably, at the next meeting on September 15, the leaders of the Bank of England will once again raise the interest rate. "Getting inflation under control is my top priority," UK Treasury Secretary Nadeem Zahavi said today.
However, weak growth prospects and a growing cost-of-living crisis, while British households face further significant increases in energy costs, suggest that the economy will find it increasingly difficult to sustain such a situation, given the upcoming Bank of England interest rate hikes.
Thus, the effectiveness of this measure remains in question. And this means that in response to an increase in interest rates by the Bank of England, the pound may react not with growth, but with a decline.
And today, market participants will carefully study the protocols from the July meeting of the Fed in order to more accurately assess the likelihood of an increase in interest rates in September and the further intentions of the leadership of the American central bank. The publication of these protocols is scheduled for 18:00 (GMT).