UK CPI set to pick up, strengthening the case for BoE November rate hike

The United Kingdom (UK) Office for National Statistics (ONS) is expected to release September’s Consumer Price Index (CPI) on Wednesday at 06:00 GMT. These figures will be accompanied by the Producer Price Index (PPI) and the Retail Sales report.

Consumer inflation figures are expected to be closely watched by investors to shed more light on the outcome of the Bank of England’s (BoE) next monetary policy meeting. Some BoE officials, including Governor Andrew Bailey, have flagged the need to hike interest rates to tame inflationary pressures, although they have been vague about the timing of the next move. If UK inflation data confirms market expectations, it might cement hopes of a rate hike in November, which would increase speculative demand for the British Pound (GBP).

What to expect from the next UK inflation report?

The market consensus anticipates a 0.3% increase in consumer inflation in September, down from August’s 0.5% rise, but with the year-on-year rate accelerating to 3.4% from 3.1% in the previous month.

Core inflation, which excludes the volatile energy, food, alcohol and tobacco components, is also seen accelerating, although at a more moderate pace. September's Core CPI is seen picking up to a 2.8% pace from 2.6% in August, adding to evidence that the impact of the energy shock stemming from the Middle East conflict is spreading through the broader economy.

Crude prices have risen more than 10% so far in October and have appreciated nearly 50% since July. The barrel of Brent Oil trades at five-month highs above $108.00 at the time of writing, and is unlikely to return to pre-war levels anytime soon, given the ever-growing entanglement among regional powers. The scenario points to high inflation pressures for a protracted period of time and the risk that central banks will fall behind the curve if they fail to react promptly.

Against this backdrop, the Bank of England has been one of the few major central banks that have not tightened its monetary policy in 2026. Some BoE officials have called for an interest rate hike, and Governor Bailey expressed his frustration with above-target inflation at the International Monetary Fund (IMF) summit in Bangkok last week, which fuelled investors’ confidence in some monetary tightening before year-end.

Recent UK data has endorsed those views. The ILO Unemployment Rate, released on Tuesday, reflected a resilient labour market, despite a decline in vacancies and a larger-than-expected increase in claimants. Last week, monthly Gross Domestic Product (GDP) came in as a positive surprise, growing unexpectedly in August, amid a strong performance of the industrial sector. All this sets a favourable scenario for a quarter-point rate hike at next month’s meeting.

How will the UK Consumer Price Index report affect GBP/USD?

The British Pound is showing one of the strongest performances among the major currencies this week. Bright UK data has boosted confidence in the economic outlook and has eased concerns about the cost of the tax-relief measures promised by Prime Minister Andy Burnham’s cabinet. 

Analysts at Commerzbank assess that recent economic data “gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy (...) Also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit.”

“How this can be achieved while at the same time providing relief to households and businesses facing high energy costs should become clearer when the budget is presented at the end of the month,” says Commerzbank in a note.

With those concerns in the rearview, at least for now, strong UK data and rising hopes that the BoE will finally hike rates in November remain the key Pound drivers this week. In contrast, the US Dollar languishes as investors pare back bets of back-to-back Federal Reserve (Fed) hikes, and the Euro suffers as protests in Paris turn violent, forcing the government to impose curfews in several cities.

From a technical perspective, the GBP/USD 4-hour chart shows an immediate bullish trend, confirmed by the successful break of the downtrend resistance line from the late August highs, which was retested on Monday. Momentum indicators are supportive, with the Relative Strength Index (14) above 60, although the Moving Average Convergence Divergence (MACD), practically flat around zero, suggests that the uptrend is still frail.

Bulls’ conviction is likely to be challenged in the area between Friday’s high at 1.3370 and the September 22 high near the 1.3400 area. A confirmation above those levels would bring the 61.8% Fibonacci retracement of the August-October downtrend, at 1.3467, and the previous support zone just above 1.3470 (September 2 and 4 lows), into focus.

On the downside, the confluence of the mentioned trendline and the previous range top, around 1.3295, is keeping bears away for now. A reversal below that level would expose the year-to-date lows in the 1.3140 area.