The United Kingdom (UK) headline Consumer Price Index (CPI) climbed 3.5% over the year in September, compared to a rise of 3.1% in August, the data released by the Office for National Statistics (ONS) showed on Wednesday.
Markets predicted a 3.4% growth in the reported period. The UK inflation reading was well above the Bank of England’s (BoE) 2% inflation target.
The core CPI (excluding volatile food and energy items) rose 2.8% year-over-year (YoY) in the same period, compared to August’s 2.6% print and came in above the forecast of 2.7%.
Meanwhile, the monthly UK CPI arrived at 0.4% in September versus an increase of 0.5% reported in August, beating the market consensus of 0.3%.
GBP/USD reaction to the UK CPI inflation data
Hotter UK CPI inflation report fails to boost the British Pound (GBP). At the time of writing, the GBP/USD pair is trading 0.08% lower on the day to trade at 1.3373.
Pound Sterling Price This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Australian Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
This section below was published at 02:00 GMT as a preview of the UK Consumer Price Index (CPI) inflation data.
- UK CPI is expected to accelerate to 3.4% YoY in September from 3.1% in August, the hottest level since December last year.
- Core inflation is also seen accelerating as the impact of high energy prices spills over into the broader economy.
- These figures might provide the BoE with the definitive argument to tighten its monetary policy at November’s meeting.
The United Kingdom (UK) Office for National Statistics (ONS) is expected to release September’s Consumer Price Index (CPI) on Wednesday at 06:00 GMT. These figures will be accompanied by the Producer Price Index (PPI) and the Retail Sales report.
Consumer inflation figures are expected to be closely watched by investors to shed more light on the outcome of the Bank of England’s (BoE) next monetary policy meeting. Some BoE officials, including Governor Andrew Bailey, have flagged the need to hike interest rates to tame inflationary pressures, although they have been vague about the timing of the next move. If UK inflation data confirms market expectations, it might cement hopes of a rate hike in November, which would increase speculative demand for the British Pound (GBP).
What to expect from the next UK inflation report?
The market consensus anticipates a 0.3% increase in consumer inflation in September, down from August’s 0.5% rise, but with the year-on-year rate accelerating to 3.4% from 3.1% in the previous month.
Core inflation, which excludes the volatile energy, food, alcohol and tobacco components, is also seen accelerating, although at a more moderate pace. September's Core CPI is seen picking up to a 2.8% pace from 2.6% in August, adding to evidence that the impact of the energy shock stemming from the Middle East conflict is spreading through the broader economy.
Crude prices have risen more than 10% so far in October and have appreciated nearly 50% since July. The barrel of Brent Oil trades at five-month highs above $108.00 at the time of writing, and is unlikely to return to pre-war levels anytime soon, given the ever-growing entanglement among regional powers. The scenario points to high inflation pressures for a protracted period of time and the risk that central banks will fall behind the curve if they fail to react promptly.
Against this backdrop, the Bank of England has been one of the few major central banks that have not tightened its monetary policy in 2026. Some BoE officials have called for an interest rate hike, and Governor Bailey expressed his frustration with above-target inflation at the International Monetary Fund (IMF) summit in Bangkok last week, which fuelled investors’ confidence in some monetary tightening before year-end.
Recent UK data has endorsed those views. The ILO Unemployment Rate, released on Tuesday, reflected a resilient labour market, despite a decline in vacancies and a larger-than-expected increase in claimants. Last week, monthly Gross Domestic Product (GDP) came in as a positive surprise, growing unexpectedly in August, amid a strong performance of the industrial sector. All this sets a favourable scenario for a quarter-point rate hike at next month’s meeting.
How will the UK Consumer Price Index report affect GBP/USD?
The British Pound is showing one of the strongest performances among the major currencies this week. Bright UK data has boosted confidence in the economic outlook and has eased concerns about the cost of the tax-relief measures promised by Prime Minister Andy Burnham’s cabinet.
Analysts at Commerzbank assess that recent economic data “gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy (...) Also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit.”
“How this can be achieved while at the same time providing relief to households and businesses facing high energy costs should become clearer when the budget is presented at the end of the month,” says Commerzbank in a note.
With those concerns in the rearview, at least for now, strong UK data and rising hopes that the BoE will finally hike rates in November remain the key Pound drivers this week. In contrast, the US Dollar languishes as investors pare back bets of back-to-back Federal Reserve (Fed) hikes, and the Euro suffers as protests in Paris turn violent, forcing the government to impose curfews in several cities.
From a technical perspective, the GBP/USD 4-hour chart shows an immediate bullish trend, confirmed by the successful break of the downtrend resistance line from the late August highs, which was retested on Monday. Momentum indicators are supportive, with the Relative Strength Index (14) above 60, although the Moving Average Convergence Divergence (MACD), practically flat around zero, suggests that the uptrend is still frail.
Bulls’ conviction is likely to be challenged in the area between Friday’s high at 1.3370 and the September 22 high near the 1.3400 area. A confirmation above those levels would bring the 61.8% Fibonacci retracement of the August-October downtrend, at 1.3467, and the previous support zone just above 1.3470 (September 2 and 4 lows), into focus.
On the downside, the confluence of the mentioned trendline and the previous range top, around 1.3295, is keeping bears away for now. A reversal below that level would expose the year-to-date lows in the 1.3140 area.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
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