UK CPI set to show sticky inflation in February as markets price a BoE rate hike

• The UK’s ONR Office publishes the February CPI data on Wednesday.
• The UK headline inflation is expected to remain well above target.
• Core inflation is also seen running hot, likely at 3.1% YoY.

The UK Office for National Statistics (ONS) will release the February Consumer Price Index (CPI) figures on Wednesday at 07:00 GMT, a print that will matter for markets. Consensus expectations point to inflation pressures keeping their grasp on the economy.

UK consumer inflation remains one of the most important inputs for the Bank of England (BoE) and typically carries real weight for the British Pound (GBP). Following the latest hawkish hold by the BoE on March 19, investors now anticipated the ‘Old Lady’ to hike its policy rate at its April 30 gathering.

What to expect from the next UK inflation report?

Headline UK CPI is expected to rise 3% in the year to February, matching the January reading. On a monthly basis, inflation is seen gaining 0.4%, reversing the 0.5% contraction recorded the previous month.

Core inflation, which strips out the more volatile food and energy components and is therefore more closely watched by the BoE, is forecast to have gained 3.1% on an annual basis. From a month earlier, core CPI is expected to have accelerated to 0.5%, after declining by 0.6% at the beginning of the year.

How will the UK CPI data affect GBP/USD?

The BoE’s rate-setting MPC voted unanimously to keep the bank rate at 3.75% last week, its second consecutive hold since it slashed rates by 25 basis points in December.

At its latest meeting, the BoE maintained its interest rates at 3.75%, but the event revealed a more hawkish stance than anticipated. The 9-0 decision, a sign of agreement, highlighted worries about inflation stemming from climbing energy costs. The Consumer Price Index is expected to hover around 3% in the second quarter and 3.5% in the third.

Governor Andrew Bailey noted that there has been an immediate rise in petrol prices and warned that household energy costs will increase if these trends continue. The Monetary Policy Committee (MPC) emphasised awareness of second-round effects, cautioning that prolonged energy shocks might necessitate stricter monetary policy, while acknowledging that weak growth could alleviate medium-term inflationary pressures.

Implied rates currently suggest a little more than 67 basis points of tightening will occur this year, while consensus sees the central bank increasing its policy rate by a quarter point at its next gathering.

Back to technicals, Senior Analyst at FXStreet, Pablo Piovano, notes that GBP/USD appears to have encountered some contention at its current yearly lows near 1.3200 (March 13). “Further weakness from here could expose a move toward the November 2025 base at 1.3010 (November 5),” Piovano adds.

“In case bulls regain the upper hand, there is interim resistance at the 55-day SMA at 1.3495, ahead of the weekly top at 1.3574 (February 26) and the YTD ceiling at 1.3868 (January 27),” he concludes.

Piovano also points out that momentum indicators remain bearish for now, as the Relative Strength Index (RSI) eases below the 47 level and the Average Directional Index (ADX) near 30 suggests quite a strong trend.