Sterling Surge: Inflation Data Buoys Britain's Pound

The British pound experienced slight gains against the dollar and euro following news of an 18-month peak in UK inflation. Despite a modest rise in the consumer price index to 3.8%, driven mainly by transport costs, markets are uncertain about imminent interest rate changes by the Bank of England.

The British pound showed marginal gains against both the dollar and euro on Wednesday, buoyed by inflation data that reached its highest level in 18 months. Markets are holding off on fully pricing a rate cut from the Bank of England until much later next year.

According to official data, the headline consumer price index increased to 3.8% from 3.6%, with inflation in the services sector jumping to 5% from 4.7%. While economists had braced for a 3.7% rise, the BoE had anticipated the current 3.8% level.

The primary driver of July's inflation spike was transport costs, most notably air fares. Danske Bank FX analyst Kirstine Kundby-Nielsen remarked on the volatility of air fares contributing significantly to the upside surprise. Meanwhile, the pound held steady, rising 0.1% against the dollar to $1.3501, and 0.1% against the euro to 86.18 pence.

(With inputs from agencies.)