CPI data 'spells further pain for households

This morning’s UK inflation data supports our view that the Bank of England will refrain from lowering rates again through the remainder of 2025. While we saw a mild miss in the main CPI rate relative to expectations, inflation continues to print at nearly double the MPC’s 2% target.

This spells further pain for households, which will continue to see their pay packets and disposable incomes eroded by rising prices, a pinch that will be felt most acutely during the weekly grocery runs, with food inflation now topping 5% on the year.

With swap markets assigning no chance of any change in rates from the MPC on Thursday, the focus for investors will be on the bank’s rate guidance. We could even see a tweak to the “gradual and careful” stance, which would indicate to markets that it no longer expects to lower the base rate at quarterly intervals.

This would be bullish for sterling, and we go into the meeting seeing risks to the pound as skewed to the upside.