Pound steady as UK inflation surges

Pound hits highest level since Feb. 2022

The British pound posted gains earlier but has failed to consolidate. In the European session, GBP/USD is trading at 1.3395, up 0.03% on the day. The pound has gained 1.1% this week and earlier today rose as high as 1.3468, its highest level since Feb. 2022.

UK inflation jumps to 3.5%

UK inflation jumped to 3.5% y/y in April, up sharply from 2.6% in March and above the market estimate of 3.3%. This was the highest annual inflation rate since Jan. 2024 and was driven by higher prices for transport, housing and energy. Monthly, inflation soared to 1.2%, up from 0.3% and above the market estimate of 1.1%.

The news wasn't much better from core CPI, which rose to 3.8% from 3.4% and was higher than the market estimate of 3.6%. This was the highest reading since April 2024. Monthly, the core rate jumped to 1.4%, up from 0.5% and above the market estimate of 1.2%.

The rise in inflation can be partially attributed to the increase in the energy price cap and the Easter holidays, but is a disappointment for the government and for the Bank of England, as inflation had been trending lower.

The BoE will be concerned by the rise in core inflation, which will complicate plans to further reduce rates. The BoE trimmed the cash rate by a quarter-point earlier this month by 0.25%, but rates are still higher than other major central banks, with the exception of the Federal Reserve.

The Federal Reserve is taking a wait-and-see attitude before it lowers rates again, especially with the uncertainty swirling around US tariff policy. Atlanta Fed President Raphael Bostic said this week that even reduced tariffs would be "definitely economically significant" and said he favored one rate cut this year.

• GBP/USD tested resistance at 1.3408 earlier. Above, there is resistance at 1.3422
• 1.3385 and 1.3371 are the next support levels