The pound sterling unexpectedly rose

Inflation in the UK in July decreased by 0.4%, reducing the annual rate to 6.8%, which was the reason for the strengthening of the pound sterling. 

The current monthly decrease in inflation was the first since January, while the annual decrease in inflation only intensified. Thus, core inflation in the UK coincided with expectations, but the resistance of core inflation continues to worry the Bank of England.

After the publication of inflation data, the pound began to strengthen. Against the dollar, it rose, reaching the level of $1.2788, and added 0.3% for the day. Despite the decline against the dollar last month, the pound is showing signs of positive dynamics this week.

The EUR/GBP pair has been showing negative dynamics since the beginning of last week, which is beneficial for the pound. In four days of trading, this indicator fell by 1%, reaching the level of 0.8565.

Despite the overall decline in inflation, its core CPI, excluding energy and food prices, remains high. In July, this figure was 6.9% per annum. Another important aspect is the rapid growth of wages in the UK. This factor is considered as one of the most serious obstacles to achieving the 2% inflation target.

The current situation makes it likely that the Bank of England will strengthen measures to control the economy. It is likely that the bank will increase the interest rate by 25 basis points in September, but a more decisive increase of 50 points is also being discussed.