UK Inflation Drops

The British Pound remains under pressure today on the back of cooler-than-forecast inflation which have cast further doubt over the prospect of a BOE rate hike next month. UK Annualised headline CPI fell back to 2.8% in April, down from 3.3% prior and below the 3% the market was looking for. At this level headline inflation is now back ta its lowest level since March 2025. Core CPI fell too, printing 2.5% from 3.1% prior, below the 2.6% the market was looking for. Interestingly, the breakdown of the data shows that the slowdown was primarily driven by declines in housing and household services inflation. This comes on the back of the energy price cap introduced by the government n April 1st. Unsurprisingly, motor fuel prices were seen soaring by 23% over the month, marking the highest annual increase since September 2022.

UK Payrolls Plunge

The data comes just a day after UK labour market readings reflected a heavy slow down in payrolls, which fell by 100k jobs last month. With payrolls now lower for three consecutive months and inflation dropping sharply, the prospect of a BOE rate hike next month looks harder to commit to. On data alone, a hike could likely be avoided next month. However, with energy prices remaining at highs and likely to stay higher for longer amidst a lack of progress in US/Iran peace talks, a hike still seems reasonable to expect. However, if we see any breakthrough in talks ahead of the meeting, particularly if accompanied by a sharp drop in oil prices, this could give the bank room to stay on hold for now.

Technical Views

GBPUSD

For now, GBPUSD remains capped by the 1.3446 level with focus on a test of the bull trend line and 1.3238 support zone next. Bulls need to defend this zone to prevent a deeper drop towards the 1.3046 level next.