Investing.com - On Wednesday, the much-anticipated Consumer Price Index (CPI) statistics from the United Kingdom will be unveiled, potentially causing a ripple effect on the Bank of England's interest rate forecast and consequently influencing the trajectory of GBP/USD exchange rates.
The Governor of Bank of England, Andrew Bailey, last week asserted that despite fluctuations in pay growth and inflation rates, Britain's economy remains robust against changes in interest rates. This statement came after labor market findings revealed an increase to 4% unemployment over three months until May while wage growth soared to an unprecedented yearly high of 7.3%.
This spike in wage inflation fuels speculation for more assertive monetary tightening by the central bank in forthcoming months with predicted peak rates around 6.25%. Eyes are now fixated on June’s UK inflation report which could solidify predictions for a half percent rate hike next month.
Experts predict a drop to 8.2% headline annual UK CPI inflation compared to May’s figure at 8.7%. The Core CPI is expected to mirror May’s pace at an increase of 7.1%. Monthly British CPI inflation figures are projected to rise by just under 0.5%; a noticeable slowdown from its previous month's growth standing at almost double that at 0.7%.
BBH analysts spotlighted that if these predictions hold true, headline numbers would represent their lowest since March but still overshoots their target by fourfold.
Market expectations imply another significant rate hike come August followed by smaller increases through December resulting in the bank rate peaking close to 6.25%.
Meanwhile, the GBP/USD continues its struggle below the $1.31 mark against USD leading up to this crucial release - maintaining its corrective phase after reaching highs not seen since early last year near $1.315 last Friday.