Headline inflation slid back below 7.9% (below consensus), illustrating a 0.4% MoM increase which has been the slowest seen since early 2022. We know that the BoE is mostly focused on service inflation, and there was good news here too – a decline from 7.4% to 7.2%, contrary to the BoE’s expectations.

The question now is whether this is enough to tilt the balance to a 25 bps hike in August. We are inclined to think so, even though it remains a close call. 

We suspect there is more room to fall in GBP/USD, especially if our expectations for some Dollar support into the FOMC prove to be correct. A move to the 1.2800 area in Cable looks possible even before the BoE meeting. 

EUR/GBP has spiked, but we suspect markets may like some bullish narrative on the Euro side beyond the 0.8700 level, and that may not come just yet if the ECB turns fully data-dependent and the eurozone outlook remains lacklustre at best.