UK CPI poised to accelerate, setting the stage for a November BoE interest rate hike

• September UK CPI is forecast at 3.4% YoY, up from August’s 3.1%, which would mark the highest reading since December last year.
• As elevated energy prices feed through to the wider economy, core inflation is expected to pick up too.
• For the BoE, the data could offer the decisive case for tightening monetary policy at its November meeting.

September’s Consumer Price Index (CPI) for the United Kingdom (UK) is due on Wednesday at 06:00 GMT, when the Office for National Statistics (ONS) is expected to publish the figures alongside the Producer Price Index (PPI) and the Retail Sales report.

With the Bank of England’s (BoE) next monetary policy decision approaching, investors are expected to scrutinise the consumer inflation data for clues to the outcome. Governor Andrew Bailey is among the BoE officials who have signalled that interest rates need to rise to contain inflationary pressures, though they have offered little clarity on when the next move might come. A UK inflation reading in line with market expectations could reinforce hopes of a November rate rise, increasing speculative demand for the British Pound (GBP).

UK inflation expected to accelerate in September

A September rise in consumer prices of 0.3%, following August’s 0.5% increase, is the market consensus. The annual inflation rate, however, is expected to climb from the previous month’s 3.1% to 3.4%.

Excluding volatile energy, food, alcohol and tobacco prices, core inflation is forecast to accelerate as well, albeit more modestly. From 2.6% in August, September’s Core CPI is expected to rise to 2.8%. That would add to the evidence that the energy shock arising from the Middle East conflict is feeding into the wider economy.

Having gained nearly 50% since July, crude prices have advanced more than 10% so far in October. At the time of writing, a barrel of Brent Oil is trading above $108.00, a five-month high. With regional powers becoming ever more entangled, a return to pre-war prices looks unlikely any time soon. This backdrop suggests inflationary pressures will remain elevated for a prolonged period, leaving central banks at risk of falling behind the curve unless they respond promptly.

The Bank of England stands out in this environment as one of the few major central banks yet to tighten monetary policy in 2026. Calls for a rate rise have come from some BoE officials. At last week’s International Monetary Fund (IMF) summit in Bangkok, Governor Bailey voiced frustration over above-target inflation, strengthening investors’ conviction that some monetary tightening would come before the year-end.

Support for that view has also come from recent UK economic releases. Despite fewer vacancies and a larger-than-expected rise in claimants, Tuesday’s ILO Unemployment Rate pointed to a resilient labour market. Meanwhile, the monthly Gross Domestic Product (GDP) figures published last week delivered a positive surprise: the economy unexpectedly expanded in August, supported by a strong industrial sector. Taken together, these developments provide a favourable backdrop for a quarter-point rate rise at next month’s meeting.

UK Consumer Price Index report puts GBP/USD in focus

Encouraging UK figures have strengthened confidence in the economic outlook while easing worries over the cost of tax-relief measures pledged by Prime Minister Andy Burnham’s cabinet. Against that backdrop, the British Pound ranks among this week’s strongest major currencies. 

In their assessment of the latest economic releases, Commerzbank analysts say the data “gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy (...) Also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit.”

In a note, Commerzbank adds: “How this can be achieved while at the same time providing relief to households and businesses facing high energy costs should become clearer when the budget is presented at the end of the month,”

With those worries receding for the time being, robust UK releases and growing expectations that the BoE will finally raise rates in November continue to underpin the Pound this week. By contrast, reduced bets on consecutive Federal Reserve (Fed) rate rises are leaving the US Dollar subdued. The Euro is also under pressure, as protests in Paris turn violent and force the government to introduce curfews in several cities.

On the GBP/USD 4-hour chart, a successful break above the descending resistance line drawn from the late August highs confirms the near-term bullish trend. The line was retested on Monday. Momentum readings lend support, with the Relative Strength Index (14) holding above 60. Nevertheless, the Moving Average Convergence Divergence (MACD) is virtually flat around zero, indicating that the uptrend remains fragile.

The zone stretching from Friday’s 1.3370 high to the 22 September high near 1.3400 is likely to test bullish conviction. A confirmed move above these levels would turn attention to 1.3467, the 61.8% Fibonacci retracement of the August-October decline, followed by the former support zone just above 1.3470, marked by the 2 and 4 September lows.

For now, sellers are being held back around 1.3295, where the previously mentioned trendline meets the top of the earlier trading range. A move back below that level would leave the year-to-date lows around 1.3140 exposed.