EUR/GBP rebounds from 25-week low on below-forecast UK CPI

The EUR/GBP currency pair rebounded from a fresh 25-week low on Wednesday, after data showed UK’s consumer price inflation had not picked up in January as expected.

Annual CPI inflation remained steady at 4.0% in January, while being close to November’s two-year low of 3.9%. In comparison, market consensus had pointed to an acceleration to 4.2%.

Yet, the rate remained well above the Bank of England’s inflation objective of 2%.

In January, inflation slowed sharply for both furniture and household goods (0.4% year-on-year versus 2.5% year-on-year in December) and food & non-alcoholic beverages (6.9% YoY versus 8.0% YoY in December).

Last month, inflation accelerated only for miscellaneous goods and services (4.5% YoY versus 4.3% YoY in December).

Meanwhile, UK’s annual core CPI inflation, which excludes volatile categories such as food and energy, also remained steady at 5.1% in January, again defying expectations of an increase to 5.2%.

Some analysts believe the data could allow the Bank of England to begin cutting interest rates by the summer.

According to Paul Dales, chief UK economist at Capital Economics, inflation is expected to ease further in the upcoming months, which “would make the BoE much more comfortable with cutting interest rates, perhaps in June.”

In other macro data, Euro traders are now expecting the second estimate of Euro Area’s GDP growth for the fourth quarter and the industrial production figures for December, due out later in the day.

As of 9:14 GMT on Wednesday the EUR/GBP pair was edging up 0.26% to trade at 0.8525. Earlier in the session, the Forex pair went down as low as 0.8498. The latter has been the pair’s weakest level since August 23rd 2023 (0.8492).