Pound Remains Below $1.34 on Softer UK Inflation

2026-07-22 06:59 By Joana Ferreira 1 min. read

Sterling remained below $1.34, its lowest level in more than a week, after UK inflation slowed more than expected, reducing the prospect of the Bank of England raising interest rates this month.

Annual inflation eased to 2.6% in June, the lowest since March 2025 and below forecasts of 2.7%, driven by lower transport and food prices.

However, core inflation (2.6%) and services inflation (3.6%) both came in slightly above expectations.

Businesses remain cautious, with CBI economist Martin Sartorius warning that inflation could pick up again in the coming months.

Meanwhile, new Chancellor John Healey welcomed the softer inflation reading but said more support is needed, as the government announced measures including lower VAT on electricity bills and a £2 cap on single bus fares across England from January.

Elsewhere, Middle East tensions escalated after President Donald Trump warned of further strikes on Iran and pledged retaliation if Iran-backed Houthi rebels disrupt Red Sea shipping.



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Pound Remains Below $1.34 on Softer UK Inflation
Sterling remained below $1.34, its lowest level in more than a week, after UK inflation slowed more than expected, reducing the prospect of the Bank of England raising interest rates this month. Annual inflation eased to 2.6% in June, the lowest since March 2025 and below forecasts of 2.7%, driven by lower transport and food prices. However, core inflation (2.6%) and services inflation (3.6%) both came in slightly above expectations. Businesses remain cautious, with CBI economist Martin Sartorius warning that inflation could pick up again in the coming months. Meanwhile, new Chancellor John Healey welcomed the softer inflation reading but said more support is needed, as the government announced measures including lower VAT on electricity bills and a £2 cap on single bus fares across England from January. Elsewhere, Middle East tensions escalated after President Donald Trump warned of further strikes on Iran and pledged retaliation if Iran-backed Houthi rebels disrupt Red Sea shipping.
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Pound Cuts Gains
The British pound erased its early gains to trade below $1.34, its lowest level in a week, as investors continued to assess the UK's evolving political landscape. Newly appointed Prime Minister Andy Burnham, who took office on Monday, unexpectedly named former Defence Secretary John Healey as chancellor. Healey was not considered a frontrunner for the role, but his appointment has fueled expectations of higher defence spending. Seeking to reassure markets, Burnham and Healey emphasized their commitment to maintaining fiscal discipline, after the prime minister appeared to step back from plans to raise the personal income tax allowance. On the economic front, data from the ONS showed UK public sector borrowing totaled £16 billion in June, around one-third lower than a year earlier and below market expectations. Investors also kept a close eye on developments in the Middle East and the subsequent rise in oil prices.
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Sterling held above $1.34, unchanged from the prior session, after UK Prime Minister Andy Burnham unexpectedly appointed John Healey, the former defense secretary, as chancellor. Healey, a surprise choice, was not among the favored candidates, but his selection may signal increased defense spending ahead. In terms of policies, Burnham has so far pledged to cut taxes on energy bills, funded by scrapping the Digital ID program. Meanwhile, ONS data showed UK government borrowing hit £16 billion in June, a third lower than the previous year and below market forecasts. Wage growth slowed to 4.3% in the three months to May, slightly under expectations, while unemployment held at 4.9%. Investors are also tracking Middle East developments, with renewed optimism for US-Iran diplomacy following recent regional escalations.
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