UK Consumer Inflation Data Next Up as Euro Rallies
By Martin Lam
Overview
The focus is on the EUR/GBP currency pair as the UK prepares to release its Consumer Price Index (CPI) inflation data. This comes on the heels of a recent rally in the euro.
Market Analysis
The EURGBP has shown resilience, finding support at the lows recorded in September and January, and is currently testing resistance at 0.8745. The upcoming UK inflation data, set to be released at 2 PM HKT, is anticipated to show a decrease in inflation to -0.5% from the previous 0.4%, which could negatively impact the British pound.
Bank of England's Interest Rate Outlook
Despite the expected slowdown in inflation, analysts predict that the Bank of England (BoE) will proceed with interest rate cuts in March, following weaker job data released on Tuesday. A report from ING highlights that the UK job market is cooling, particularly in consumer-facing sectors affected by last year's government policy changes. Wage growth is also expected to decline, reinforcing the outlook for rate cuts.
Unemployment Trends
The unemployment rate in the UK has risen to 5.2%, nearly a full percentage point higher than the previous year. This increase is particularly pronounced in the hospitality sector, which has seen employment drop by almost 3% since the start of 2025. ING forecasts that the unemployment rate could reach 5.5% this year, further dampening wage growth and supporting the case for lower interest rates from the BoE.
Market Expectations
City of London markets are currently pricing in a 75% probability that the BoE will lower interest rates to 3.5% at its next meeting, an increase from 69% earlier in the week. Analysts expect two rate cuts by Christmas, potentially bringing the benchmark rate down to 3.25%.