On Wednesday, November 20th at 3:00 PM Beijing time, the UK will release its CPI data for October. The market expects the annual CPI rate in the UK to rise from 1.7% in September to 2.2% in October, indicating an acceleration in inflation.

Economists from the Bank of England and the Office for Budget Responsibility have recently raised their forecasts for the near future. Previously, the government announced a significant increase in spending in the October budget.

In addition, household energy prices in the UK have risen again, so the easy part of the deflation process in 2024 is now a thing of the past. Driven by strong service sector inflation, the annual core CPI rate in the UK is expected to remain at 3.2% in October.

Forex analyst Gary Howes said that if these CPI data weaken, the pound may face pressure as it could open the door for the Bank of England to potentially cut interest rates in December.

Sam Hill, head of market insights at Lloyds Bank, said, "The annual service sector CPI rate in the UK is expected to continue hovering around 5% in October. To significantly increase the likelihood of a rate cut in December, a significant downward surprise is needed

If inflation exceeds expectations, the pound is likely to rebound as investors strengthen their expectation that the Bank of England will only be able to cut interest rates quarterly in 2025, which means there may only be four further cuts.

The market is particularly interested in the UK PMI data released on Friday, as they should include the impact of the October budget.

There are reports that after the budget was announced, business confidence and recruitment intentions were hit, which may be reflected in poor PMI readings. If that's the case, the pound may experience a decline this week.

Jane Foley, Senior Foreign Exchange Strategist at Rabobank, said, "Within two weeks of the budget announcement, various well-known figures in the UK retail and hotel industries warned that Reeve's increase in employer national insurance contributions would lead to a significant increase in costs for consumers. Others said this could lead to unemployment

The Bank of England is likely to respond to signs of an economic slowdown by cutting interest rates again next month, as they believe they can further cut rates without exacerbating inflation. This indicates that the central bank believes that if growth is allowed to collapse, inflation in 2025-2026 will be significantly lower than current expectations.

Forex analyst Gary Howes said that any signs of accelerating interest rate cuts would put pressure on the pound.

Daily chart of GBP/USD