Last week’s labor market and GDP data followed the Bank of England’s 25 basis point rate cut to 4%. However, a 5-4 vote in favor of cutting rates underscored the Monetary Policy Committee’s divided stance on inflation and the labor market.
Today’s inflation figures reduce the likelihood of another cut in September, but economists still anticipate one additional reduction in 2025. ING Economics discounted the latest GDP report:
“We doubt the Bank will take too much inference from the stronger second quarter growth performance. At the very most, it might bolster the arguments of the hawks who are pushing for a slower pace of rate cuts from now on. But in practice, this will much more heavily depend on forthcoming inflation and jobs data.”
Looking ahead, ING Economics added:
“We certainly expect the GDP figures in the second half of the year to have a weaker flavour to them. The jobs market is under pressure; payrolled employment has fallen in eight out of the last nine months.”
Whether the BoE will ease rates in November or December will hinge on the next round of CPI and labor market data. For now, the July data gives the hawks a stronger voice.
GBP/USD Volatility Post-Inflation Data
Ahead of the inflation report, the GBP/USD briefly climbed to a high of $1.34927 before falling to a low of $1.34616. Following the report, the pair briefly slid to a low of $1.34757 before surging to a high of $1.34980.
On Wednesday, August 20, the GBP/USD was up 0.01% to $1.34907, reflecting reduced market bets on a September BoE rate cut.
