British Pound holds broadly steady following hot UK CPI figures

• The UK CPI release prompts swings in the British Pound, although the currency is little changed overall.
• September's UK headline and core CPI readings both show faster growth than forecast.
• Hawkish BoE expectations could gain ground following robust UK employment and CPI figures.

September's United Kingdom (UK) Consumer Price Index (CPI) figures exceeded forecasts, prompting swings in the British Pound (GBP) against its peers while leaving it broadly unchanged overall. Sterling is trading at around 211.45 against the Japanese Yen (JPY), also little changed.

Headline CPI rose by 3.5% year on year (YoY), according to the Office for National Statistics (ONS), exceeding the 3.4% forecast and August's 3.1% reading. Core CPI, which strips out the volatile food, energy, alcohol and tobacco components, increased by 2.8% YoY over the same period. That was above both the 2.7% estimate and the previous reading of 2.6%.

The monthly rise in inflation was 0.4%, above the expected 0.3% but below the previous reading of 0.5%.

Tuesday's UK labour market figures for the three months to August also surpassed forecasts. Taken together, the robust employment figures and stronger-than-expected CPI readings are likely to strengthen expectations that the Bank of England (BoE) will raise interest rates at its November policy meeting. The BoE has left rates unchanged at 3.75% so far this year.

Upside risks to inflation were also highlighted on Tuesday by Megan Greene, a member of the BoE's Monetary Policy Committee (MPC), who warned that second-round inflation effects could begin to emerge.

GBP rate hike risks persist as BoE’s Greene highlights stalled wage disinflation

A score of 7.4/10 on the FXS Speechtracker puts BoE’s Greene exactly at her historic average, indicating continuity in tone rather than stronger rhetoric. Her emphasis on wage disinflation having stalled above levels compatible with 2% inflation, together with her view that policy should act proactively to counter second-round effects, conveys a distinctly hawkish bias for GBP.

Although forward-looking indicators suggest pay growth closer to 3.5%, Greene considers the risk of second-round inflation effects greater than previously thought, strengthening the argument for maintaining tight policy. Her references to unexpectedly resilient economic activity and the possibility that labour market slack has peaked imply limited downside risks to growth. This supports the case for continued GBP support as markets price in a slower pace of future rate cuts.

In Japan, attention turns to September's National CPI figures, due for release on Friday.