What is driving the move

Today's inflation report from the Office for National Statistics is not a disaster, but it is not the clean victory BoE Governor Andrew Bailey had been hoping for either. The headline figure came in at 2.6% y/y — slightly below the consensus of 2.7% and a notch down from May's reading of 2.8%. That is the good news. The bad news: the core figure, which excludes energy, food, alcohol and tobacco, remained stuck at 2.6% against an expected 2.5%, and services price growth barely fell to 3.6% from 3.7% — well above analyst models' target of around 3.5% (source: ForexLive/ActionForex).

At the component level, the picture is mixed. Goods price growth fell from 2.0% to 1.7% in June, partly driven by lower food and transport costs. But that positive effect was more than offset by the services sector, where restaurants and hotels rose 1.0% on the month and recreation and culture contributed +0.5% (source: ONS). In addition, according to research from ActionForex, portable devices stood out with a sharp price jump of 22% month over month — a contribution that underscores that core price growth is not solely about entrenched inflationary structures, but is at times driven by more unpredictable one-off items.

Bruna Skarica, Chief UK Economist at Morgan Stanley, says the data "reinforces the BoE's cautious approach," pointing to underlying inflationary pressures remaining relatively subdued in an environment of weak domestic demand. That is a balanced characterisation, but the reality is that the BoE cannot afford to lean back: according to the Resolution Foundation and the IMF, the UK has spent just a single month below the 2% target over the past five years.

Looking ahead, the risk picture is asymmetric to the upside. The household energy price cap is expected to rise by 13.5% in July, and the renewed flare-up in the US-Iran conflict is pushing energy prices higher again — directly threatening to reverse the decline in headline inflation that is partly attributable to lower commodity prices. If energy shocks feed through into other categories, a new round of second-round effects could follow. That is not the base case right now, but the risk is real enough to keep the BoE on alert.

For risk assets such as crypto and growth equities, this means the rate differential against the BoE remains elevated: a policy rate of 3.75% while other central banks begin to ease creates a gravitational pull toward traditional interest-bearing assets (source: ActionForex analysis). The opportunity cost of holding non-yielding assets such as Bitcoin is measurable and rising.

«Softer headline inflation supports the broader disinflation narrative, but the upside surprise in core CPI should temper expectations that policymakers are gaining a decisive victory over inflation.» — ActionForex

UK core inflation refuses to fall — BoE held at 3.75% as markets price in 'higher for longer' - Bilde 1

Key figures

2.6%
UK core CPI y/y (June)
2.5%
Consensus estimate
3.6%
Services price growth y/y
3.75%
BoE policy rate

UK core inflation refuses to fall — BoE held at 3.75% as markets price in 'higher for longer' - Bilde 2

Macroeconomic overview

Bonds and rates

UK 2-year gilts are moving higher in the wake of the report — the market is scaling back the probability of a cut at the BoE's July 30 meeting to near zero. The 10-year is holding relatively steady, reflecting that long-term inflation expectations have not exploded, but the short end of the yield curve is stiffening. The spread between the 2-year and 10-year UK gilt remains inverted, a signal that the market is still not convinced about the long-term growth trajectory.

GBP

Sterling reacted with moderate weakness against the USD following the report — the market had priced in a small chance that core inflation would fall enough to open the door to a softer BoE tone. That did not happen. GBP/USD is trading under pressure from a "higher for longer" narrative that has capped the upside from an otherwise mildly positive headline surprise. EUR/GBP is relatively stable, as the ECB and BoE find themselves in a similar policy limbo.

Equities

UK equities are showing risk-off signals. The financial sector is ambivalent — higher rates support net interest income, but weaker growth prospects dampen loan volumes. The real estate sector, which is directly sensitive to mortgage rates, is under pressure. Defensives (healthcare, consumer staples) are holding up relatively well.

Crypto context

BTC at $65,987 and Fear & Greed at 33/100 mirror the broader risk-off mood. Research indicates that the BoE's persistently high rate of 3.75% — while other central banks begin to ease — raises the opportunity cost of holding non-yielding assets such as Bitcoin. Bitcoin ETF inflows have not been consistently positive during the period according to available research, a sign that the macro backdrop is weighing heavily. Historically, BTC fell 65% during the inflation shocks of 2022 and is down around 36% over the past 12 months, undermining the narrative of Bitcoin as a short-term inflation hedge (source: Grayscale/Research Affiliates).

The BoE remains stuck at 3.75% while services price growth of 3.6% and July energy risks keep any easing discussion firmly on ice

Technical picture

GBP/USD

Sterling is finding temporary support around the 1.2900 area following the report, but the overall trend is neutral to mildly negative. Resistance sits at 1.3050, where the past two weeks of consolidation have met sellers. RSI on the daily chart is near 45 — neither oversold enough to trigger a reversal buy nor overbought. MACD is flat, confirming the absence of a clear directional bias.

UK 2-year gilt (yield)

Rose to around the 4.10–4.15% zone following the report. Technical resistance at 4.25% — a break above this level would signal that the market is pricing in a genuine probability of a BoE rate hike, which is not currently the consensus. Support at 3.95%.

BTC/USD (risk context)

BTC is trading at $65,987, below the key support level of $67,000 that served as a floor last week. RSI on the 4-hour chart is 38 — not technically oversold yet, but approaching that territory. The next solid support lies around $63,500. The upside is capped by resistance at $68,200.

Technically, GBP/USD's flat MACD and RSI below 50 confirm that the market is waiting for a clear catalyst — the BoE meeting on July 30 is the decisive event

What to watch

Upcoming events:

  • July 30 — BoE rate meeting: No change expected, but the tone of the policy statement and Bailey's press conference will be crucial. The market is looking for signals as to whether the first cut could come in September or November 2026.
  • July energy price cap: An estimated 13.5% increase in UK household energy from August 1 will directly push headline inflation higher in the next report. This will test the BoE's patience further.
  • US-Iran conflict: The renewed flare-up in tensions is already pushing energy prices higher. If Brent crude rises back above $85–90/barrel, pressure on the UK energy component will become immediately visible in August CPI data (source: ForexLive).
  • UK July CPI (published mid-August): The next real data point for the BoE. Analysts will be watching closely to see whether services price growth breaks below 3.5%, and whether the energy price shock begins to show up.
  • Price levels to monitor: GBP/USD 1.2850 (support) and 1.3050 (resistance); UK 2-year yield 4.25% (inflection level); BTC $63,500 (next support on further risk-off).

The UK has spent just one month below the 2% inflation target over the past five years — this is not a country with room to celebrate a single decline in headline CPI.

Sources: ForexLive/investinglive.com, ONS (Office for National Statistics), ActionForex, Morgan Stanley (Bruna Skarica), Resolution Foundation, IMF, Research Affiliates (Cam Harvey), Grayscale Investments.