UK CPI set to show inflation rose in April, challenging BoE’s rate cuts

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UK CPI set to show inflation rose in April, challenging BoE’s rate cuts – Crypto News

Published

1 year ago

May 21, 2025

Dripp

The United Kingdom’s Office for National Statistics will publish the April CPI data on Wednesday.
Inflation, as measured by the CPI, is forecast to be much higher than in March.
The GBP/USD pair trades near its 2025 high and aims to advance beyond it.

The United Kingdom (UK) will release the Consumer Price Index (CPI) data for April on Wednesday at 06:00 GMT. The report, released by the Office for National Statistics (ONS), has a relevant impact on the Sterling Pound (GBP) amid its potential effect on future Bank of England (BoE) monetary policy decisions.

Inflation, as measured by the CPI, is foreseen to have risen by 1.1% on a monthly basis, much higher than the 0.3% posted in March. The annual figure is expected to be 3.3%, also higher than the previous 2.6%. Finally, the annual core CPI is forecast to hit 3.7% after posting 3.4% in the previous month.

What to expect from the next UK inflation report?

The UK CPI is then seen almost doubling the BoE’s goal of 2%. The news, while discouraging, would come as no surprise.

The BoE’s last decision on monetary policy was to cut the benchmark interest rate to 4.25% from 4.5%, with five out of the nine Monetary Policy Committee (MPC) members backing such a decision. Two other voting members aimed for a larger cut, while the other two preferred to keep rates on hold.

In the accompanying statement, policymakers noted, “There is also a lot of uncertainty from global developments, partly because of changes in global trade policies. We are assessing what this could mean for UK inflation closely.” Officials also added: “We expect an increase in inflation this year. It is likely to rise temporarily, to 3.7%, partly because of higher energy prices. Inflation is expected to fall back to the 2% target after that.”

Uncertainty has dominated central banks’ messages since United States (US) President Donald Trump arrived in the White House with his protectionist policies. Massive tariffs pose a risk to global growth and inflation. While the UK is among the economies less affected by Trump’s decision, it is indeed not exempt from suffering an economic setback due to levies.

Markets are cautiously optimistic amid a 90-day pause in levies and a reduction of retaliatory tariffs between Washington and Beijing. Still, it is worth noting tensions remain in the background, with trade negotiations underway without progress being reported.

Deutsche Bank senior economist Sanjay Raja adds: “April inflation will present the biggest test for the Monetary Policy Committee so far this year”.

How will the UK Consumer Price Index report affect GBP/USD?

The inflation uptick falls within the BoE’s predictions, but that does not make it less worrisome. Generally speaking, higher than anticipated CPI figures would suggest the BoE will adopt a more hawkish stance and refrain from trimming interest rates, resulting in a firmer GBP. The opposite scenario is also valid, with softer-than-anticipated inflationary pressures leaving the door open for additional rate reductions.

Ahead of the announcement, the GBP/USD pair comfortably trades above the 1.3300 mark, roughly 100 pips away from the 2025 peak at 1.3445 amid broad US Dollar weakness. The Greenback came under selling pressure after Moody’s Investors Service, a rating agency, downgraded the United States sovereign credit rating from Aaa to Aa1 on Friday, expressing concerns about piling up debt.

Valeria Bednarik, Chief Analyst at FXStreet, expects GBP/USD to reach higher highs for the year in the upcoming days. “Given the broad USD weakness and increasing price pressures in the UK, the GBP/USD pair is likely to resume its advance and challenge the yearly peak.”

Bednarik adds: “From a technical point of view, GBP/USD is in a consolidative stage since mid-April. The daily chart shows that moving averages have turned flat, reflecting the lack of directional strength, yet the pair holds above them all, with the 20 Simple Moving Average (SMA) providing support at around the 1.3300 mark. Below such level, buyers have been defending the downside at around the 1.3250 region, while the base of the monthly range comes at 1.3140.”

Finally, Bednarik states: “A steady advance beyond the 1.3400 mark should favor a run past the year high and towards the 1.3500 area, while additional gains expose the 1.3560 price zone, where GBP/USD peaked in September 2022.”

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

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core 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. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.