• Home
  • Pro
  • Partners
  • Help and support
  • English
  • Italiano
  • Español
  • Français
Pepperstone logo
Pepperstone logo
  • Ways to trade
    • Trading accounts

      Choose from two account types depending on your strategy

    • 24-hour trading

      Trade CFDs on key US shares 24/5.

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Trading hours
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
  • Markets
    • Forex

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodities

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrencies

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Shares
    • ETF
    • Indices
    • Currency indices
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
  • Trading platforms
    • TradingView

      Trade through supercharts with tight spreads

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
  • Market analysis
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

  • About us
    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
    • Trading accounts

      Choose from two account types depending on your strategy

    • 24-hour trading

      Trade CFDs on key US shares 24/5.

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Trading hours
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
    • Forex

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodities

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrencies

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Shares
    • ETF
    • Indices
    • Currency indices
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
    • TradingView

      Trade through supercharts with tight spreads

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
GBP

Catastrophic CPI Poses BoE and GBP A Headache

May 24, 2023
Share
The April UK inflation report poses yet another headache for the embattled Bank of England in their ongoing losing battle against spiralling prices. A further acceleration in core inflation, coupled with a slower than expected deceleration in the headline rate, has led markets to aggressively reprice the UK rates curve in a hawkish direction, though has thus far failed to provide the pound with much support.

Headline CPI rose by 8.7% YoY in April. While lower than the 10.1% seen a month prior, the figure was considerably above the 8.2% consensus, and even more disappointing when one considers that almost the entire decline came by virtue of the base effects from last year’s sharp rise in energy prices, rather than any disinflationary forces currently within the economy. Food inflation remains the primary issue, rising a whopping 19.3% YoY.

Stripping out energy and food prices, however, paints no better a picture. Core CPI surged 6.8% YoY last month, the fastest pace since the early-90s, and above all estimates submitted to both Bloomberg and Reuters.

Preview

Furthermore, both metrics are considerably above the BoE’s own forecasts; Governor Bailey’s Tuesday comments that “inflation has turned a corner” are now looking very premature indeed.

Unsurprisingly, the market has undergone a significant hawkish repricing since the data dropped. Money markets now price 30bps of tightening for the June MPC decision, fully expecting another 25bps move, plus assigning a roughly 1-in-5 chance that the BoE plump for a larger 50bps hike. Looking further ahead, markets now envisage Bank Rate peaking at 5.35% at the end of the year, up from around 5% a week ago.

Preview

Of course, the last time that markets were expecting a terminal rate around these levels was during the fall-out from PM Truss’ disastrous ‘mini-budget’. In contrast to then, the pricing feels a lot more realistic this time around, though it’s important to consider that with the BoE set to continue hiking in 25bp clips, the economy is likely to lose momentum rather too quickly to permit such a degree of tightening. Expecting a peak rate around 5% may be more realistic.

It's also important not to jump to conclusions digesting the disastrous inflation figures. There is another inflation report due before the next MPC, which will likely have a more significant impact on the decision that the Committee take.

Despite this, it is hard to argue against the UK economy being in ‘stagflation’ at this point – inflation remains high, and rising; signs of softness are beginning to emerge in the labour market; and, incoming activity data pointing to, at best, anaemic economic growth. This poses a significant headache for the BoE, one largely of their own making, and leaves few good options.

Doing nothing from here on in will only serve to make the inflation problem worse; modest further tightening would likely have little-to-no impact on inflation, but will dent economic growth; a significant degree of additional hikes, in line with market pricing, would likely have an impact on inflation, but also destroy the demand side of the economy. In short, the ‘Old Lady’ is stuck between a rock and a hard place.

Laying things out like this, it’s tough to be bullish on the GBP over the medium-term.

Preview

Cable’s recent rally has rather run out of steam, with the 1.27 handle proving too much of a stretch for the quid. Since, price has fallen back into the broad 1.19 – 1.25 range which has been in place since the end of 2022, having also closed below the 50-day moving average for two days running, flipping momentum in the bears’ favour.

Shorts will be targeting a break of the recent lows at 1.2380 in order to continue recent downside momentum; a move towards the mid-1.22s seems plausible, particularly considering the hawkish Fed repricing that continues to act as a tailwind for the USD.


Related articles

Trader Thoughts - signs of life as debt ceiling anxiety start to hit home

Trader Thoughts - signs of life as debt ceiling anxiety start to hit home

Indices

The material provided here 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. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other Sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to Trade

  • Pricing
  • Trading Accounts
  • Pro
  • Active trader Program
  • Trading Hours

Platforms

  • Trading Platforms
  • Trading tools

Markets and Symbols

  • Forex
  • Shares
  • ETFs
  • Indicies
  • Commodities
  • Currency indicies
  • Cryptocurrencies
  • CFD Forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Meet the Analysts

Learn to Trade

  • Trading Guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
0035725030573
195, Makarios III Avenue, Neocleous House,
3030, Limassol Cyprus
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Sitemap

© 2025 Pepperstone EU Limited
Company Number ΗΕ 398429 | Cyprus Securities and Exchange Commission Licence Number 388/20

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trading derivatives is risky. It isn't suitable for everyone and, in the case of Professional clients, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your or your client's personal objectives, financial circumstances, or needs. Please read our legal documents and ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice.

Pepperstone EU Limited is a limited company registered in Cyprus under Company Number ΗΕ 398429 and is authorised and regulated by the Cyprus Securities and Exchange Commission (Licence Number 388/20). Registered office: 195, Makarios III Avenue, Neocleous House, 3030, Limassol Cyprus.

The information on this site is not intended for residents of Belgium, Spain or the United States, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.