The UK Office for National Statistics (ONS) will release the December Consumer Price Index (CPI) figures on Wednesday at 07:00 GMT, a print that will matter for markets. Consensus expectations point to a modest re-acceleration in inflation pressures.
UK consumer inflation remains one of the most important inputs for the Bank of England (BoE) and typically carries real weight for the British Pound (GBP). With the Monetary Policy Committee (MPC) meeting on February 5, investors broadly expect the ‘Old Lady’ to keep the bank rate unchanged at 3.75%, but this week’s data will help shape the tone of that decision.
What to expect from the next UK inflation report?
Headline UK CPI is expected to have edged higher to 3.3% in the year to December, up from 3.2% in November. On a monthly basis, inflation is seen rebounding by 0.4%, reversing the 0.2% decline recorded the previous month.
Core inflation, which strips out the more volatile food and energy components and is therefore more closely watched by the BoE, is forecast to have remained unchanged at 3.2% on an annual basis. From a month earlier, core CPI is expected to have accelerated to 0.3%, after slipping 0.2% in November.
How will the UK CPI data affect GBP/USD?
The BoE’s rate-setting MPC voted 5–4 to cut the bank rate by 25 basis points to 3.75% in December, its fourth reduction in 2025. While the decision acknowledged softer inflation dynamics and early signs of cooling in the labour market, the Committee stressed that any further easing would be gradual.
The December Decision Maker Panel (DMP) survey did little to challenge the prevailing narrative around the bank’s rate outlook. In short, it leaves the status quo firmly in place, with persistent wage pressures limiting the scope for any meaningful repricing at the front end of the curve.
One-year-ahead wage expectations edged up to 3.7% from 3.6%, while realised pay growth over the past year remains stuck in the mid-4% range. Both metrics continue to sit uncomfortably above levels consistent with inflation returning sustainably to target.
The bottom line is that the survey fails to move the needle, reinforcing the case against bringing forward rate cuts.
So far, implied rates pencil in just over 42 basis points of easing this year, while the BoE is widely anticipated to maintain its policy rate unchanged next month.
Back to technicals, Senior Analyst at FXStreet, Pablo Piovano, notes that GBP/USD appears to have encountered some contention at its current yearly lows near 1.3340 (January 19). “Further weakness from here could expose a move toward the interim support at the 55-day SMA at 1.3309 ahead of the December floor at 1.3179 (December 2),” Piovano adds.
“In case bulls regain the upper hand, the YTD ceiling at 1.3567 (January 6) should emerge as the immediate up barrier. North from here, there are no resistance levels of note until the September 2025 high at 1.3726 (September 17),” he concludes.
Piovano also points out that momentum indicators remain bullish for now, as the Relative Strength Index (RSI) bounces to around 54 and the Average Directional Index (ADX) near 20 suggests a fairly firm trend.
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.
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Source: https://www.fxstreet.com/news/uk-cpi-expected-to-show-a-mild-rebound-in-inflation-in-december-202601210215
