The UK’s Office for National Statistics (ONS) is set to release December CPI data on Wednesday. Headline inflation is expected to edge up to 3.3%, while core inflation is projected to remain sticky above 3.0% year-on-year.
The UK Office for National Statistics (ONS) is scheduled to publish December Consumer Price Index (CPI) data at 07:00 GMT on Wednesday, a release closely watched by financial markets. Economists anticipate a mild pickup in inflationary pressures.
UK inflation remains a key consideration for the Bank of England (BoE) and is typically a significant driver of Sterling movements. With the Monetary Policy Committee (MPC) due to meet on February 5, markets largely expect policymakers to leave the bank rate unchanged at 3.75%, though this week’s inflation figures are likely to influence the guidance and tone of the decision.
What might the upcoming UK inflation report reveal?
Headline UK CPI is projected to tick up to 3.3% year-on-year in December, compared with 3.2% in November. On a monthly basis, inflation is expected to rebound by 0.4%, reversing the 0.2% month-on-month decline seen previously.
Meanwhile, core inflation—which excludes volatile food and energy prices and is more closely monitored by the Bank of England—is anticipated to remain steady at 3.2% annually. Month-on-month, core CPI is forecast to rise by 0.3% after falling 0.2% in November.
What impact will the UK CPI data have on GBP/USD?
In December, the Bank of England’s Monetary Policy Committee narrowly voted 5–4 to reduce the bank rate by 25 basis points to 3.75%, marking its fourth cut in 2025. Although policymakers pointed to easing inflation pressures and initial signs of a softening labour market, they emphasised that any additional policy loosening would proceed cautiously.
The December Decision Maker Panel (DMP) survey largely reinforced this outlook and failed to alter expectations around the policy path. Persistent wage pressures continue to constrain the potential for significant repricing at the short end of the yield curve.
One-year-ahead wage growth expectations rose slightly to 3.7% from 3.6%, while actual pay growth over the past year remains in the mid-4% range. Both indicators remain well above levels consistent with a sustained return of inflation to the BoE’s target.
Overall, the survey does little to shift sentiment and supports the argument against accelerating rate cuts. Markets currently price in just over 42 basis points of easing for the year, with the BoE widely expected to keep rates unchanged at its next meeting.
From a technical perspective, Pablo Piovano highlights that GBP/USD is facing resistance near its yearly lows around 1.3340, recorded on January 19. A further decline could open the door to the 55-day simple moving average at 1.3309, followed by the December low at 1.3179. Conversely, if buyers regain control, the year-to-date high at 1.3567 may act as the first upside hurdle, with little resistance beyond that until the September 2025 peak at 1.3726.
Piovano also notes that momentum indicators remain supportive, with the Relative Strength Index rebounding to around 54 and the Average Directional Index near 20, pointing to a reasonably firm underlying trend.
Sources: Fxstreet
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