Stefano Rebaudo

(Reuters) – Sterling rose after UK data showed price pressures remain powerful, meaning the Bank of England is likely to have to wait longer to cut interest rates.

In May, UK inflation returned to the 2% target for the first time in almost three years, while closely watched service prices rose by 5.7%.

Markets are pricing in a 30% chance of the BoE’s first rate cut by August from around 50% before the data, expecting 44 basis points of monetary easing in 2024 from almost 50 basis points before the data.

The euro fell 0.20% to 84.32 pence against the pound, up 0.16% to $1.2730. Just before the publication of inflation data, the situation did not change.

“For now, we maintain our forecast that the bank will cut interest rates first from 5.25% in August, although this is subject to better information on CPI inflation in services and wage growth in the coming months,” said Ruth Gregory, deputy chief economist at Capital Economics.

Last week’s data showed that UK wages rose faster than forecast.

“The most important question is whether the bank will maintain its previous guidance and prepare the market for the August start of the interest rate cut cycle,” said Jamie Dutta, market analyst at Vantage, after announcing on Thursday that there would be no BoE decision on interest rates.

“Maintaining restrictive policies for an ‘extended period’ is the key phrase to pay attention to.”

“Of course, before we get to that point, there will be a general election on July 4, which could rule out any significant changes to future guidance at that meeting,” he added. Analysts expected the BoE to start easing its monetary policy in August, said all but two of the 65 economists polled by Reuters last week. Most of them forecast at least one more cut this year, despite persistently high inflation in wages and services.