CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

UK CPI jumps to 7%, highest since 1992

The UK's latest inflation reading is likely to have left many investors with a bittersweet taste, as the Bank of England now faces the challenging job of combating soaring inflation whilst avoiding hindering growth in the economy.

(Video Transcript)

CPI data

Let's take a look at some of the data that's come out this morning, because we've had the latest inflation reading out from the UK.

Surprising numbers here - a very, very strong reading with headline inflation coming in at 7% year-on-year, the CPI data there. We were expecting to see it at 6.7%, which was already a big jump from the 6.2% we saw in February. Producer Price Index came in at 11.9% year-on-year - again, much higher than 11.1% we were expecting and higher than the 10.1% seen in February. The Retail Price Index is at 9% year-on-year, higher than 8.8% and also 8.2%.

GBP/USD technical outlook

Let's take a look now at a chart of the pound to see how it's trading. I'm going to zoom in here to a 5-minute chart to see what the immediate reaction was. A strong start here for the pound. This is prior to the announcement here, starting at around 6am UK time, a strong rally, probably in anticipation of these numbers coming in.

Then as soon as we saw the data, we did see a bit of a spike to the upside above $1.30, which has been a key trading area as of late. And then a full reversal to the downside and you can see this really, really strong pullback here in terms of the short-term chart as markets were digesting the news, coming down below $1.30 at the moment.

Now, what does this mean? We were expecting markets to anticipate this rise in CPI data. As it came in much stronger than expected, you would assume that the pound would trade higher because of what this means later on down the line for the Bank of England's meeting in May. Are they going to raise rates higher than expected? Is that going to make the pound more valuable with this rate hike?

But of course, that also means this is a double-edged sword with inflation. It means that these rising cost are putting pressure on households. You can see consumer prices there, 7% year-on-year, that's a massive increase in consumer spending and also in terms of household spending.

Does that mean we are going to have an economic slowdown? Does that mean that the Bank of England is going to have to be more careful now with their monetary policy trying to combat this surging inflation, but also avoiding a recession, which would lead to stagflation, which is the fear in the market right now?

So potentially not a reaction expected by most in the market here from the pound. We've also got a bit of strength in the dollar because of that safe haven demand, because of those same concerns about economic recession and surging energy prices and inflation.

So all-in-all, GBP/USD still trading to the downside, a pretty clear descending trendline now as you can see. For me, if we haven't seen this spike higher on this strong data from the UK and what this implies from the Bank of England, I am struggling to see how the pound reverses in the short-term and potentially we are heading back towards the 50% Fibonacci at $1.2828.

It seems likely now that we are going to find some support around this area at $1.2855 even, as the pound seems to be continuously weakening here against the US dollar.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

See more forex live prices


See more shares live prices


See more indices live prices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.