Inflation data due at 7:00BST

UK inflation data is due at 7:00BST.

• CPI is expected to decline to 2.3% Y/Y in July falling, from a near-two-year high of 2.5% in June, as base comparisons that saw re-openings a year ago likely weren't matched this July. That, analysts note, means a lower annual rate of inflation, now, although a rise to between 3.5% and 4.0% is seen later this year. The MPC expects inflation to hit 4% by year end.
• Our data team notes that clothing prices could dampen inflation in July, as they declined in line with historical norms last month, in contrast with July of 2020 when sales patterns were distorted by the reopening of non-essential shops. A surge in used-car costs could counter some of that downward pressure; prices rose by an annual rate of 14.1%, according to Auto Trader, up from a 11.1% jump in June, when used-car prices added 0.08 percentage points to the change in CPI.
• PPI is expected below May's peak with input inflation forecast at +9.1% Y/Y (unch from June), while output prices are forecast to rise 4.4%, up 0.1ppt from June.
• In terms of reaction, market participants remain very focused on inflation data. An upside surprise of 0.2ppt or higher would likely have a larger impact than a downside surprise. As we note above, base effects are likely to subdue this month's print relative to prints later this year, so inflation would still be expected to pick up if we see a downside surprise, but there may be more concerns about a higher peak in inflation if we surprise to the upside in today's print.
• Our technical analyst looks at initial GBPUSD resistance at 1.3850/76, yesterday's high/50-day EMA with initial support at yesterday's low of 1.3726 ahead of the July 22 low of 1.3691 with the bear trigger at the July 20 low of 1.3572.