Bank of England on August 7 reduced the interest rates by 25 basis points. 5-4 votes in favor of cutting rates reflect a divided monetary policy committee, which is likely to focus on inflation.
The next UK CPI report, on August 20, will probably be likely to put near-term bets on the BOE rate cut. Economists estimate an annual inflation rate in July to increase from 3.6% to 4% in June. BOE may be reluctant to cut rates. If inflation climbs more, the potential rate cuts back by November or possibly December.
ING Economics indicated a cut in BOE rate on 1 November, They said,
“We still think that the bank’s concerns about inflation will prove to be very much. There is no reason in itself that inflation will get more entangled, just because the headline CPI is sitting above the target. It depends on the workers that they are capable of chasing high wages, as they bid to maintain purchasing power.”
However, ING Economics warned:
“We are clinging to our calls, but the next pair report of inflation to be surprised was a report, or if recently the private sector employment starts declining, we will reconsider.”
GBP/USD response for Q2 GDP report
Prior to the UK GDP report, GBP/USD fell to a low of $ 1.35639 before climbing a high level of $ 1.35919.
However, in response to the report, GBP/USD sank briefly at a low of $ 1.35685 before the GBP/USD extended a high level of $ 1.35858 to a high level of $ 1.35858.
On Friday, August 14, GBP/USD ranged from 0.05% to $ 1.35806.
