British Pound remains broadly flat after hot UK CPI data

• The British Pound reflects volatile moves after the UK CPI data release, but remains broadly steady.
• In September, both headline and core UK CPI grew at a faster-than-expected pace.
• Strong UK job data and CPI figures could boost hawkish BoE bets.

The British Pound (GBP) reflects topsy-turvy moves against its peers, but remains broadly flat, after the release of the hotter-than-expected United Kingdom (UK) Consumer Price Index (CPI) data for September. Against the Japanese Yen (JPY), the British currency is almost flat at around 211.45.

The Office for National Statistics (ONS) has reported that the headline CPI grew by 3.5% Year-on-Year (YoY), faster than 3.4% estimates and the August reading of 3.1%. In the same period, the core CPI – which excludes the volatile components of food, energy, alcohol and tobacco – also grew stronger by 2.8% YoY vs. estimates of 2.7% and the previous release of 2.6%.

On a monthly basis, inflationary pressures rose by 0.4%, faster than expectations of 0.3%, but slower than the prior release of 0.5%.

On Tuesday, the UK labor market data for three months ending August also came in better-than-projected. The duo of strong job data and hot CPI figures will likely boost expectations of an interest rate hike by the Bank of England (BoE) in the November policy meeting. So far this year, the BoE has held interest rates steady at 3.75%.

BoE Monetary Policy Committee (MPC) member Megan Greene also warned of upside inflation risks on Tuesday, citing that second-round inflation effects could start materializing.

BoE’s Greene flags stalled wage disinflation, keeping GBP rate hike risks alive

BoE’s Greene scores 7.4/10 on the FXS Speechtracker, exactly in line with Greene’s historic average, signaling a consistent tone rather than an escalation in rhetoric. The emphasis that wage disinflation has stalled at levels above those consistent with 2% inflation, alongside a belief that policy should proactively lean against second-round effects, marks a clearly hawkish bias for GBP.

Greene’s view that the risk of second-round inflation effects is greater than previously thought, even as forward-looking data point to pay growth closer to 3.5%, reinforces the case for keeping policy tight. References to surprising economic resilience and labor market slack potentially having peaked suggest limited downside growth risks, supporting a narrative of sustained GBP support as markets price in a slower path to future rate cuts.

On Tokyo front, investors await the National CPI data for September, which is scheduled for Friday.