According to the report, inflation in the United Kingdom increased for the second consecutive month in July, adding pressure on the Bank of England to reconsider the pace of its interest rate cuts.

Data published on Wednesday by the Office for National Statistics showed that the Consumer Price Index rose 3.8% year-on-year in July, up from 3.6% in June. Economists had forecast inflation to remain at 3.6%.

The rise in inflation has intensified pressure on the Bank of England, forcing it to reassess the pace of rate cuts. The Bank expects inflation to return to the 2% target only next year, but the July increase raised the likelihood that it will need to maintain a cautious approach to interest rates.

Today's acceleration marks the fastest pace since January 2024. The report noted that the increase was driven by higher prices for airfares, hotels, and fuel. Service-sector inflation, a closely watched indicator of underlying price pressures, climbed to 5%, exceeding the Bank of England's forecast of 4.9%.

The data confirm that companies are responding to April's tax and minimum wage hikes introduced by Chancellor of the Exchequer Rachel Reeves by passing billions of pounds in additional costs onto consumers. While understandable from a business perspective, this strategy raises concerns about the sustainability of consumer demand, which is a key driver of economic growth. The consequences are clear: rising prices across a wide range of goods and services, adding pressure on households, particularly those already under financial strain. This could lead to a decline in consumer spending, negatively affecting retail and other sectors of the economy.

Moreover, price increases caused by tax changes and the higher minimum wage may contribute to rising inflation expectations. If consumers expect further price increases, they may demand higher wages, which in turn could push companies to raise prices further, creating an inflationary spiral.

Food price inflation also accelerated, reaching 4.9% compared to 4.5% the previous month, its highest level since February 2024.

Against this backdrop, traders have scaled back expectations for future rate cuts after the August 7 decision to lower borrowing costs by less than forecast, which prompted some policymakers to warn of secondary effects on wages and prices as consumers attempt to restore lost purchasing power.

Subsequent data showing that the economy and labor market are holding up better than expected have only added to concerns. On Tuesday, traders priced in just a one-in-three chance of a rate cut in November, and only 50% odds by year-end.

These figures also dealt a blow to Reeves and Prime Minister Keir Starmer, who came to power promising to improve living standards for working people. Instead, the recovery in real incomes is stalling as rising inflation collides with a cooling labor market, while critics blame their October tax-raising budget for causing both.

Technical Outlook for GBP/USD For pound buyers, the nearest resistance is at 1.3530. Only a breakout above this level would open the way to 1.3560, though further gains will likely be difficult. The next target stands at 1.3590. On the downside, bears will attempt to reclaim 1.3480. If they succeed, a breakout of this range would deal a serious blow to bullish positions and push GBP/USD toward 1.3445, with prospects of reaching 1.3405.

Technical Outlook for EUR/USD Buyers must reclaim 1.1670 to target a test of 1.1700. From there, the pair could move toward 1.1730, though achieving this without strong support from large players will be challenging. The furthest target is the 1.1768 high. On the other hand, only near 1.1625 do I expect significant action from major buyers. If none are present, it would be preferable to wait for a retest of the 1.1600 low or consider opening long positions from 1.1565.