Pound Sterling Higher Against Euro and Dollar on Sticky UK Inflation

July 16, 2025 - Written by Frank Davies

STORY LINK Pound Sterling Higher Against Euro and Dollar on Sticky UK Inflation

The Pound Sterling rose against the Euro (EUR) and US Dollar (USD) following the release of higher-than-expected UK inflation, although it still struggled to make significant headway.

The Pound to Dollar exchange rate (GBP/USD) edged above 1.3400 from just below that level ahead of the release and is still close to 3-week lows.

The Pound to Euro exchange rate (GBP/EUR) traded at a level close to 1.1540, having previously been at 1.1530.

UK consumer prices increased 0.3% for June, with the headline inflation rate at 3.6% compared with consensus forecasts of no change at 3.4%.

The core inflation rate increased to 3.7% from 3.5%, compared with market expectations of a second consecutive reading of 3.5%.

According to the ONS, higher fuel prices and an increase in air fares were the main culprits in pushing the inflation rate higher, while inflation pressure in the housing and household services sector eased on the month.

Food prices increased 4.5% in the year, the highest reading since February 2024.


The goods inflation rate increased to 2.0% from 2.4% while the services-sector rate was unchanged at 4.7%.

Markets will still be very confident that the Bank of England (BoE) will cut interest rates at the August meeting, while medium-term direction will remain opaque.

The latest labour-market data on Thursday will potentially have a more substantial impact on BoE expectations.

In a brief to clients on Wednesday, Lloyds Bank economists highlighted that UK inflation data for June surprised to the upside, with headline CPI rising 3.6% y/y, 0.2 points above both market and BoE forecasts.

The bank noted, “not straightforward to completely downplay the upside surprise as a blip in one narrow sector,” pointing to overshoots in both core and services inflation.

Food inflation was flagged as a key concern, accounting for half the headline overshoot, with Lloyds warning this category holds “extra saliency when it comes to formation of inflation expectations.”

Despite the surprise, Lloyds still sees a 25bp Bank Rate cut in August as the most likely outcome, though it expects a potentially “unconvincing vote split with nuanced language.”


Analysts at ING Bank added, "Services inflation is uncomfortably high for the Bank of England, even if much of it is driven by regulated or backwards-looking categories. That suggests the Bank will be reluctant to speed up the pace of rate cuts, though Thursday's jobs data is key. If that deteriorates further, policymakers have little choice but to move faster."

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TAGS: Pound Sterling Forecasts