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Event Guide: U.K. CPI Report (June 2023)

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Are you ready for another round of UK CPI data?

Here’s what the upcoming release of the BoE’s policy path and GBP price action could mean.

Focus on the event:

UK Consumer Price Index (CPI) and inflation data for June 2023

When will it be released:

July 19, 2023 (Wednesday), 6:00 AM BST

Use our forex market hours tool to convert GMT to your local time zone.

Expectations:

  • Core CPI YoY: +8.2% YoY vs. +8.7% YoY
  • Core CPI YoY: Expectations +7.1% YoY vs. +7.1% YoY
  • Monthly PPI Input: +0.2% MoM vs -1.5% MoM
  • PPI Output Monthly: -0.3% mom expectation vs. -0.5% mom prior

Related data since the last data event/release:

  • average income index The index accelerated to 6.9% for the three-month period ending in May versus the agreed 6.8%, and the index for the April period increased from 6.5% to 6.7%.
  • S&P Global Manufacturing PMI June reflects another month of declines in input costs, marking the largest decline since February 2016, as “Weaker demand for inputs, lower fuel costs, lower commodity prices, and improved supply chains” came into play
  • S&P Global Services PMI June showed that input cost inflation fell to the lowest level since May 2021, but production costs rose due to higher wages.
  • in May, product input prices It fell by 1.5% on a monthly basis while output prices fell by 0.2% versus the expected decline of 0.1%.

Previous issues and the impact of environmental risks on the pound sterling

June 21, 2023

Event Results/Price Action:

The May inflation report came in stronger than expected on most fronts, with core CPI flat at 8.7% y/y rather than declining to an expected reading of 8.4%.

Core inflation rose from 6.8% y/y to 7.1% instead of remaining unchanged while the retail price index and housing price index also beat estimates.

The only downside to the report was that producer input and output prices fell below expectations and indicated weak inflationary pressures.

Surprisingly, the upbeat CPI numbers continue to trigger a sharp drop in GBP crosses, as traders fear this will force the Bank of England to raise interest rates to recession-inducing levels. However, the Bank of England delivered another surprise by increasing borrowing costs by 0.50% and allowed Sterling to recover against some of its peers.

Risk Environment and Internal Market Behaviors:

Market watchers were already bracing for hot inflation data from most major economies, which could then prompt central banks to tighten policy and possibly put overall growth at risk.

Higher-yielding currencies were already in full swing early in the week, on the heels of a downgrade in Chinese data over the weekend. Things managed to turn better in the middle of the week when Fed Chair Powell sounded sketchy about the timing of future US interest rate hikes, sending US stocks and Crude Oil higher.

Then again, it wasn’t long before risk aversion hit the markets again when June PMI readings were released on Friday.

May 24, 2023

Event Results/Price Action:

The UK’s headline CPI for April beat market estimates, even with the reading declining from 10.1% to 8.7% y/y. Analysts had expected a sharp decline to 8.2% but inflationary pressures turned out to be more persistent than that.

Core CPI also came in better than expected, with the reading rising from 6.2% yoy to 6.8% rather than flat. Core inflation measures came in mixed, with the retail price index also beating estimates while producer prices indicated weaker input costs.

Overall, the British Pound is still rallying against its forex peers during the CPI release as these point to stronger chances of a BoE rate hike in the coming months.

Stronger-than-expected retail sales data on Friday allowed the pound to extend its gains, as it reassured traders that stagflation risks might be averted.

Risk Environment and Internal Market Behaviors:

There was a lot of consolidation during this trading week as market watchers were playing it safe while the US debt ceiling negotiations were underway.

At the time, the talks collapsed in the absence of US President Biden over the weekend, prompting Treasury Secretary Yellen to stress that the June 1 deadline was fast approaching. This limited rising risks while supporting safe havens such as the dollar and the yen.

Not even a rally in US stocks on Thursday was enough to spark risk appetite, as Fitch’s decision to put the US on negative watch left investors on edge at the end of the week.

Price action odds:

Possibilities of feeling risky:

This busy trading week kicked off with a handful of data points out of China, with the most notable reading, the GDP, coming in below expectations. This seems to have brought a little bit of risk into the markets with a mostly quiet trading session.

This muted bias is likely to continue until we release US Retail Sales on Tuesday, which could affect broad market sentiment. US Retail Sales data is expected to come in higher than previous readings, but whatever the case, look out for it will likely drive broad risk sentiment in Wednesday’s trading.

Scenarios for the British pound:

Possible base scenario:

It may be time for a decline in price pressures in the UK, as most of the major indicators such as PMIs and PPIs point to lower costs. After all, the Bank of England has been working hard to keep inflation at bay with its successive rate hikes.

If the market dynamics between inflation data and risk appetite remain the same as in the previous week, then the pound may actually be in for a surprise rally if the CPI numbers disappoint.

Although this could mean a definitive end to the BoE’s tightening cycle, it could leave the GBP bulls optimistic about much better growth prospects for the British economy.

In that case, look for long GBP against commodity currencies, especially if risk-off flows emerge after US retail sales data. The pound could also lift gains against safe havens like the dollar or the yen, especially since the Fed and Bank of Japan are not quite as hawkish these days.

Possible alternative scenario:

However, the strong inflation report in the UK will make it the fourth consecutive surprise on the monthly upside, which may revive recession fears for the British economy due to the possibility of higher borrowing costs.


Keep in mind that the average earnings index for May still reflects stubborn wage growth, which puts upward pressure on business production costs and headline consumer inflation.


With that said, the Bank of England may have no choice but to continue to tighten monetary policy, tossing the line between maintaining price stability and risking a downturn in economic activity.

In this scenario, watch for a sell-off in GBP similar to that from May’s CPI, which could lead to declines against the Swiss Franc and the Euro whose central banks seem to be balancing things out quite well lately.

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