The UK’s Office for National Statistics (ONS) will release the October Consumer Price Index (CPI) data on Wednesday at 07:00 GMT. Markets broadly expect inflation to soften further, reinforcing the view that price pressures are easing across the economy.
UK CPI remains a major indicator for the Bank of England (BoE) and typically drives notable moves in the Pound Sterling (GBP). With the next Monetary Policy Committee meeting scheduled for December 18, traders have increased bets on a potential rate cut, especially as recent economic data continues to weaken.
What markets expect from the UK inflation report
Headline CPI is projected to fall to 3.6% year-on-year in October, down from 3.8% in each of the previous three months. Although easing, inflation still remains almost twice the BoE’s 2% target and is at its highest level since January 2024.
On a monthly basis, CPI is expected to rise 0.4%, reversing September’s flat reading.
The decline in inflation is largely driven by softer food and energy prices. Food and non-alcoholic drink costs eased in the second half of the year after significant spikes earlier in products like eggs, cheese, chocolate, and coffee. Energy bills also rose at a slower annual pace—just 2% in the year to October compared with nearly 10% in the same period last year, according to Ofgem.
Core CPI, which excludes volatile items such as food and energy, is also expected to cool. The core measure is forecast to fall to 3.4%, down from 3.5% in September and well below July’s peak of 3.8%.
Impact on GBP/USD
Recent UK data has highlighted a notable economic slowdown, fueling expectations that the BoE may cut interest rates in December or early 2025. If CPI comes in lower as expected, it would strengthen the argument for a more dovish approach.
Last week’s data showed the economy unexpectedly contracted by 0.1% in September, while Q3 GDP growth slowed to just 0.1%, below the expected 0.2% and down from 0.3% in Q2. Year-on-year growth also slipped to 1.3% from 1.4%.
Industrial figures painted an equally downbeat picture:
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Industrial Production fell 2% in September
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Manufacturing Production dropped 1.7%
Labour market conditions have also weakened. The unemployment rate rose to 5%, the highest since 2021, while net employment fell by 22,000. Wage growth slowed to 4.8% including bonuses.
At its November meeting, the BoE kept rates unchanged at 4.0%, though four members supported an immediate cut. If inflation falls sharply in October, it could add further pressure on policymakers to ease monetary policy to support the economy.
This scenario would likely weigh on the Pound, especially given fading expectations of a December rate cut by the Federal Reserve.
All BrokerInfo analyst Guillermo Alcala notes that GBP/USD is searching for direction after briefly moving above 1.3200:
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A soft CPI print could push the pair below 1.3085, potentially targeting the important 1.3000 support.
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A hotter-than-expected reading, however, may lead to a more erratic reaction. Sticky inflation could complicate the BoE’s policy outlook, resulting in sideways and choppy movement before Thursday’s US Nonfarm Payrolls report.
