UK CPI may show temporary inflation relief as the energy price cap helps shield consumers.

• UK annual headline inflation is expected to soften in April even as monthly inflation edges higher.
• The upcoming UK CPI report could give the BoE additional room to leave interest rates unchanged in June.
• Pressure on the Pound Sterling remains to the downside, while an inflation figure above forecasts may add to the currency’s weakness.

The Office for National Statistics is set to release the UK Consumer Price Index (CPI) data for March at 06:00 GMT.

As inflation remains a key focus for central banks, investors will closely examine April’s CPI figures for clues on the next policy move by the Bank of England. Any significant divergence from market expectations could trigger short-term volatility in the British Pound (GBP).

What to expect from the upcoming UK inflation report

UK annual inflation is projected to ease to 3% in April from 3.3% in March, although monthly CPI growth is expected to accelerate slightly to 0.9% from the previous 0.7% reading.

The reduction in Ofgem’s energy price cap ahead of the Iran conflict appears to have helped limit the impact of higher energy costs, while fading Easter-related price effects have also contributed to moderating inflation pressures.

Core CPI, which excludes volatile items such as energy, food, alcohol, and tobacco, is projected to slow to 2.6% YoY in April — the weakest pace since July 2021 — reinforcing expectations for softer overall inflation.

Alongside the CPI report, the Office for National Statistics will also release April’s Producer Price Index (PPI) data. PPI Input inflation is forecast to cool sharply to 1% from 4.4% in March, while PPI Output inflation is expected to edge up slightly to 1% YoY from 0.9%.

If confirmed, easing inflation pressures could reduce the urgency for the Bank of England to raise interest rates, particularly as UK unemployment continues to rise following Tuesday’s labor market data. However, the relief may prove temporary. Ofgem is scheduled to revise the energy price cap in July, likely leading to higher household energy bills and renewed upward pressure on headline inflation. The BoE currently expects inflation to peak around 4% later this year.

Analysts at TD Securities noted that while the latest inflation figures may offer short-term reassurance, the full impact of higher energy costs is expected to emerge in the third quarter, with potential second-round inflation effects later in the year.

How could the UK CPI report impact GBP/USD?

Inflation remains a central factor in BoE policymaking and therefore has a major influence on the British Pound. Still, Sterling has been weighed down in May by mounting political uncertainty following the Labour Party’s poor performance in local elections, creating additional pressure on the currency.

In this context, a softer-than-expected inflation reading could offer some support to the Pound by giving the BoE more flexibility to monitor domestic conditions and assess the economic fallout from tensions in the Middle East before adjusting interest rates. BoE Deputy Governor Sarah Breeden warned on Monday that political uncertainty is affecting the business climate and cautioned policymakers against acting too aggressively on rates.

On the other hand, a stronger-than-expected inflation print could place the BoE in a more difficult position and potentially deepen bearish sentiment toward the Pound.

From a technical standpoint, Guillermo Alcala believes the British Pound remains under pressure following last week’s decline. He noted that although Monday’s bullish engulfing pattern on the daily chart helped reduce some downside momentum, the near-term outlook for GBP remains bearish. According to Alcalá, buyers still require stronger momentum to reclaim the former support zone near 1.3450 and shift attention toward the mid-May highs around 1.3530–1.3540.

On the downside, he highlighted Monday’s low near 1.3305 as an important support level. A decisive break below that area could pave the way for further losses toward the late-March and early-April highs around 1.3175.