UK inflation rose as expected in July, while sterling held its gains as investors weighed the outlook for interest rates.
The British pound held its gains against the US dollar on Wednesday after official figures showed UK inflation rose in July, in line with economists’ expectations.
Sterling was 0.14% higher at $1.3552, extending its recovery after a modest jobs report weighed on the currency a day earlier. Against the euro, however, the pound slipped slightly to 85.56 pence.
Investors are assessing fresh economic data for signs of whether sterling can sustain its gains after advancing for three consecutive weeks.
Improving confidence in the UK economy has supported the currency, although rising oil prices remain a concern as hopes of an agreement between the United States and Iran to end their conflict continue to fade.
UK annual consumer price inflation rose to 2.9% in July from 2.6% in June, its lowest level in 15 months. The increase was in line with the 2.9% forecast from economists surveyed by Reuters, while the Bank of England had projected a 2.8% rise in forecasts released last month.
Ruth Gregory, deputy chief UK economist at Capital Economics, said domestically driven inflation remained under control. She maintained her expectation that consumer price inflation could return to the Bank of England’s 2% target by the end of next year, provided energy costs do not rise significantly.
The Bank of England’s official inflation target is 2%.
Market pricing suggests traders expect at least one interest-rate increase from the Bank of England before the end of the year, according to LSEG data. However, most economists surveyed by Reuters expect the central bank to keep its benchmark rate unchanged at 3.75%.
Goldman Sachs analysts, who expect the Bank of England to make no further rate increases this year, warned that the gap between market expectations and their outlook could weigh on sterling in the coming months.