And this is one of, if not arguably the key report in settling that debate. Because the next UK CPI report for May will only come a day before the June monetary policy decision. So, what is the backdrop like as we head into the key release later?
Let's start off with the data itself.
The expectations for the release shows that headline annual inflation is estimated to come in at 2.1% in April. That will mark the lowest reading since July 2021. The March reading was 3.2%, so that is a steep drop. However, it needs to be put into context.
The steep annual comparison decline is largely attributed to a drop in the Ofgem energy price cap. Ofgem lowered the price cap for UK energy bills by 12% as announced here, starting from 1 April.
Besides that, core annual inflation is estimated to fall to 3.6% in April, down from 4.2% in March. Meanwhile, services inflation is expected to remain sticky at around 5.5% but still lower than the 6.0% reading in the month before.
So, what does that all mean?
The debate for the BOE now is whether or not they might get to cutting rates sooner rather than later. The odds for a June rate cut are near 50-50, with a ~48% probability priced in now. The next meeting in August sees ~95% odds of the BOE cutting, so it's almost fully priced in.
As such, softer-than-expected readings in the CPI report will see traders push to price in a June move surely. That will in turn drag the pound lower in response. GBP/USD is now at 1.2710, not far away from a nudge towards its 100-hour moving average of 1.2693. A break below that will see buyers surrender near-term control, making room for a steeper drop towards 1.2600.
Of course, the flip side is that the readings reflect much stickier inflation than anticipated. And that will see traders phase out a potential June move. With cable already at its highest levels since March, that paves the way for a push to 1.2800 with the March high of 1.2893 possibly in sight depending on the dollar side of the equation.