**GBP/USD Price Analysis: Stubborn Inflation to Halt BoE Cuts**
*By Yohay Elam, as originally posted on Forex Crunch ([link](https://www.forexcrunch.com/blog/2025/08/20/gbp-usd-price-analysis-stubborn-inflation-to-halt-boe-cuts/))*
The GBP/USD pair has entered a pivotal juncture as persistent inflation weighs heavily on the Bank of England’s (BoE) upcoming monetary policy decisions. While markets have long anticipated rate cuts from the BoE, elevated price pressures mean that the central bank may be forced to delay any dovish moves. This dynamic puts the British pound (GBP) and its exchange rate against the US dollar (USD) under the microscope. The following analysis explores price action, underlying macroeconomic forces, and projections for GBP/USD in the context of sticky UK inflation and expectations for the BoE.
## Key Takeaways
– UK inflation remains stubbornly high, exceeding BoE targets and market forecasts
– The Bank of England is likely to delay rate cuts compared to the US Federal Reserve
– Markets are repricing expectations, limiting GBP downside in the near term
– GBP/USD technical analysis shows resilience above key support levels, with upside potential if inflation persists
– UK and US economic divergences and central bank pacing are critical to the pair’s outlook
## UK Inflation: The Stubborn Culprit
UK inflation has proved more persistent than policymakers and markets anticipated. The latest data reveals Consumer Price Index (CPI) readings consistently above the BoE’s 2% target. Most notably:
– Headline inflation remains above 3%, with core inflation also elevated
– Services inflation, driven by wage growth and strong demand, is particularly sticky
– Energy prices and food inflation have moderated, but broader price pressures persist
The BoE’s primary concern centers on domestically-driven inflation, especially amid robust wage growth and still-firm service sector prices. Even as global disinflation trends pick up, the UK lags its peers, making it challenging for the central bank to pivot dovish.
### Why is UK Inflation High?
– **Labor market resilience**: Wage growth outpaces productivity, feeding directly into service costs
– **Post-pandemic dynamics**: Bottlenecks and Brexit-related frictions continue to disrupt supply chains
– **Consumer demand**: High household savings and robust retail demand maintain upward price pressures
These factors suggest that the inflationary environment may be more entrenched in the UK than elsewhere, particularly when compared to the US or Eurozone.
## Monetary Policy: BoE Versus Fed
Central bank divergence is a key market theme. While the Federal Reserve is signaling a clear pathway toward rate normalization, with several rate cuts expected in the latter half of 2025, the BoE remains cautious.
### BoE’s Current Position
– **Base rate**: Held at 5.25%, among the highest in the developed world
– **Forward guidance**: Policymakers are data-dependent but hesitant to ease while inflation remains above target
– **Communication**: Cautious rhetoric, flagging inflation persistence and the risk of premature easing
The BoE’s reluctance to cut rates, given inflation is still running hot, has led traders to reconsider their expectations. Earlier in the year, two rate cuts were priced in for 2025, but current market-implied rates now suggest just one cut at most, with increasing odds of none.
### Fed’s Position
– **Base rate**: Currently at 5.00% to 5.25%, with cuts expected if inflation continues to moderate
– **US inflation**: More progress than the UK, supporting a slightly more dovish stance
– **US economy**: Economic data is mixed, with some signs of cooling in the labor market, justifying rate cut forecasts
### Market Repricing and GBP/USD Impact
The changing narrative has consequences for GBP
Read more on GBP/USD trading.