GBP/USD slips after the January CPI data: UK GDP, retail sales next

Consumer prices in the UK remained at an elevated level in January as housing and insurance costs jumped. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) rose to 4.0% in January after rising by the same range in the previous month. The CPI dropped by 0.6% on a MoM basis.

Meanwhile, core inflation remained stubbornly high during the more. The figure, which excludes the volatile food and energy prices, rose by 5.1% in January. It came in at minus 0.9% on a MoM basis. These numbers are significantly higher than the Bank of England’s target of 2.0%.

The report came a day after the UK released strong jobs numbers. The unemployment rate slipped from 4.1% in November to 3.8% in December. Wage growth also remained at an elevated level even as some companies like The Body Shop and Tata Steel remain on edge.

Therefore, with inflation falling, analysts expect that the Bank of England (BoE) will start cutting interest rates in the next few months. Most analysts expect at least three rate cuts this year since the economy is expected to remain under pressure this year. The GBP/USD slipped to 1.2560 after the report since the US released strong inflation numbers on Tuesday.

The next important UK news will come out on Thursday when the ONS will publish the latest GDP numbers. Economists expect these numbers to show that the economy stalled in the fourth quarter as it narrowly avoided a recession. Precisely, they see the headline GDP data growing by 0.1% on a YoY basis and contracting by 0.1% on a MoM basis. The ONS will also release the latest manufacturing and industrial production numbers on Thursday.

Further, this week's data dump will see the ONS publish the latest retail sales numbers on Friday. The country's retail sector has done modestly well in the past few months, helped by the tourism sector.

These reports are important because they will help the BoE when making its next decisions. In its first meeting of the year, the bank left rates intact and hinted that it would maintain the status quo. The challenge, however, is that prolonged high rates could hurt the country’s economy while cuts could make inflation stubbornly high.

All this explains why the GBP/USD pair has dropped while the country’s stock indices like the FTSE 100 and FTSE 250 have lagged their global peers.