FX.co ★ British Pound Weakens After Softer Inflation

The British pound slipped to $1.34 as markets absorbed a softer-than-expected inflation report ahead of Thursday’s Bank of England policy decision. UK consumer price inflation unexpectedly held at 2.8% in May, below forecasts for an increase to 3%. Core inflation rose to 2.6%, just under expectations of 2.7%, while services inflation accelerated to 3.7% from 3.2%, broadly in line with market estimates. The figures indicate that underlying price pressures are less intense than previously feared, supporting the cautious, wait-and-see stance favored by some Bank of England policymakers. The central bank is widely expected to keep its benchmark interest rate unchanged at 3.75% this month as it weighs still-elevated inflation against a softening labor market and an economic contraction in April. Investors currently anticipate only one rate hike this year, with a 25bps increase not fully priced in until December.