Pound Sterling (GBP) showed little reaction to the UK’s August CPI release, which broadly matched expectations, though persistently elevated core and services inflation highlight slow disinflation and reinforce stagflation risks, BBH FX analysts report.

UK inflation matches BOE projections in August

"GBP ignored the UK August CPI report. Headline CPI matched consensus and Bank of England projection at 3.8% y/y for a second consecutive month. Core CPI was also in line with consensus at 3.6% y/y vs. 3.8% in July, while services CPI inflation eased more than anticipated to 4.7% y/y (consensus and BOE: 4.8%) vs. 5.0% in July."

"Regardless, disinflationary progress remains slow. Core inflation has been above the 2% target for four years now and services inflation has averaged 4.9% y/y in the last year. Bottom line: the UK economy is skirting with stagflation which can further undermine GBP vs. EUR."