The United Kingdom (UK) Office for National Statistics (ONS) will publish the high-impact Consumer Price Index (CPI) data for March at 06:00 GMT.
The report could significantly alter market expectations about a Bank of England (BoE) interest rate hike later this year, ramping up volatility around the Pound Sterling (GBP), as traders brace for the impact of the energy shock from the Middle East war.
What to expect from the next UK inflation report?
The UK Consumer Price Index is expected to rise 3.3% year-over-year (YoY) in March, following a 3% increase in February. The reading is likely to come in above the BoE’s projection of 3%, moving further away from its 2% target.
Core CPI inflation, which excludes energy, food, alcohol, and tobacco prices, is expected to hold steady at 3.2% YoY in the reported period.
According to industry experts, official data is expected to show that service inflation remained stable at 4.3% YoY in March.
Meanwhile, the British monthly CPI is seen rising by 0.6% in the same period after a 0.4% growth in February.
“We expect headline inflation to rise to 3.3% year-over-year from 3.0%, driven by the energy supply shock, while core inflation is expected to hold at 3.2%, matching February and in line with consensus expectations. This would mark a significant reversal in the progress toward disinflation seen in the U.K. through February and is likely to persist for several months, “ Wells Fargo said in a research note ahead of the data release.
How will the UK Consumer Price Index report affect GBP/USD?
It’s the inflation print that covers the first monthly period data after the United States (US) and Israel launched airstrikes on Iran in late February, prompting retaliatory strikes by the Iranian Republic and leading to higher energy costs, particularly for Oil. Therefore, an uptick in headline British inflation, both monthly and annual, is well anticipated.
However, markets may consider this a one-off, as what would matter the most for the BoE when deciding on interest rates are the so-called second-round effects on core inflation from the war impact.
Speaking on the energy shock-led inflationary pressures, in a speech on April 14, BoE policymaker Megan Greene said that “we won’t have definitive evidence of second-round effects for a while, it could take months.”
She further noted that “we can’t just look through negative supply shocks; the view needs to be more nuanced.”
“The swaps curve has slashed BoE rate hike bets over the next twelve months from as much as 100 basis points (bps) on March 26 to 25 bps currently. BoE rate hike bets should ease further given excess slack in the economy. The BoE estimates a negative output gap of -1% of GDP in 2026,” BBH Analysts noted.
The latest labor data published by the Office for National Statistics (ONS) showed annual growth in regular earnings, excluding bonuses, slowed less than expected to 3.6% in the three months to February from 3.8% previously, while the Unemployment Rate unexpectedly fell to 4.9% in the three months to February, from 5.2% in January, and lower than estimates of 5.2%.
With signs of stabilization in the UK labor market and higher inflation projections, the March CPI data will be critical to keeping bets alive for a BoE rate hike this year.
A surprise uptick in the core CPI and services inflation could double down on hawkish BoE expectations. In such a case, the Pound Sterling will receive the much-needed lift, driving GBP/USD back toward the 1.3600 barrier. Conversely, an unexpected slowdown in core readings could push back against BoE rate hike bets, weighing negatively on the pair.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “GBP/USD is defending the triple top breakout resistance-turned-support near 1.3485, with the 14-day Relative Strength Index (RSI) momentum indicator holding well above the 50 level.”
“The pair needs acceptance above the 1.3600 round level to break the consolidative mode, paving the way toward the 1.3700 threshold. The next topside target is aligned at the February high of 1.3732. On the flip side, the immediate support is seen near 1.3485, below which the 1.3415 area could challenge bullish commitments. That zone is the confluence of the 50-day Simple Moving Average (SMA) and the 200-day SMA. Further down, the 21-day SMA at 1.3384 will be the level to beat for sellers,” Dhwani adds.
Pound Sterling Price This Year
The table below shows the percentage change of British Pound (GBP) against listed major currencies this year. British Pound was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.06% | -0.16% | 1.72% | -0.28% | -6.69% | -1.88% | -1.50% | |
| EUR | 0.06% | -0.15% | 1.85% | -0.16% | -6.28% | -1.74% | -1.37% | |
| GBP | 0.16% | 0.15% | 2.00% | 0.01% | -6.15% | -1.60% | -1.23% | |
| JPY | -1.72% | -1.85% | -2.00% | -2.04% | -8.18% | -3.99% | -3.05% | |
| CAD | 0.28% | 0.16% | -0.01% | 2.04% | -6.25% | -1.98% | -1.23% | |
| AUD | 6.69% | 6.28% | 6.15% | 8.18% | 6.25% | 4.85% | 5.25% | |
| NZD | 1.88% | 1.74% | 1.60% | 3.99% | 1.98% | -4.85% | 0.38% | |
| CHF | 1.50% | 1.37% | 1.23% | 3.05% | 1.23% | -5.25% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
