Sterling rises as market anticipates UK economic data

On Thursday, the British pound experienced a marginal increase as market participants awaited the release of key UK economic data, which could influence the Bank of England’s (BoE) monetary policy direction.

According to Reuters, the pound was trading at $1.261, marking a 0.2% rise against the U.S. dollar as of 1108 GMT. Against the euro, sterling maintained its position at 82.795 pence.

The recent UK inflation figures, released on Wednesday, indicated a faster-than-anticipated rise in consumer prices for January, potentially challenging the likelihood of the BoE implementing an additional two rate cuts within the year. Despite this, traders are still forecasting two more rate reductions from the central bank in 2025.

George Vessey, the lead FX and macro strategist at Convera, commented on the situation, noting that leading indicators suggest persistent high inflation in the UK, and economic growth may outperform expectations. These factors could postpone the anticipated gradual rate cuts but are not expected to alter the broader outlook of a slow disinflationary process.

The Office for National Statistics reported a 3% annual increase in its consumer price index for January, surpassing the predicted 2.8% rise. Services inflation, a particular concern for the BoE, climbed to 5% from 4.4% in December, falling short of the anticipated 5.2% increase.

The BoE’s upcoming meeting is scheduled for March 20, and market players are keen to scrutinize UK retail sales figures and preliminary business activity survey data due on Friday.

These metrics will provide further insight into the UK’s economic health, following Tuesday’s employment data that revealed accelerating wage growth and last week’s GDP figures, which showed an unexpected 0.1% economic expansion in the final quarter of the previous year.

Vessey also highlighted the pound’s sensitivity to global risk appetite and its relative advantage over the euro due to the UK currently not being targeted by Trump’s tariffs.

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