At 14:00 Beijing time on May 22 (Wednesday), the UK will release the April CPI data. The Bank of England, Finance City economists, and the “market” are too optimistic about a sharp drop in UK inflation.

Economist Andrew Sentance, a former member of the Bank of England's Monetary Policy Committee (MPC), saidInflation will increase 2.7% year over year in April, far exceeding market expectations and falling to 2.1% from 3.1% in March.

Sentance said, “I forecast the UK CPI inflation rate of 2.7%, which is far higher than the 2.1% consensus of economists in the Financial City. They seem to have greatly underestimated the potential inflationary momentum from rising wages and services.”

If Sentance is correct, then waiting for a pretty big upside event could ruin any hope that the Bank of England will cut interest rates this summer. After a sharp upward surprise, bets on interest rate cuts in June will be erased, and the chances of interest rate cuts in August plummet, which may lead to a sharp sell-off of British sovereign bonds. This will drive up bond yields and the British pound exchange rate.

There seems to be a lot of uncertainty about the results. One analyst warned that if inflation falls below expectations and eventually triggers continuous interest rate cuts, the pound may fall sharply.

Bank of England and Finance City economists expect a sharp drop in inflation, which depends on a sharp drop in household energy bills in April, as the legal price cap was lowered by “about 12%.”

In a Twitter post,Sentance explained that the drop in energy prices “only brought about 1.1% of the expected 0.4% drop, as well as many other sources of inflation.”

“The market and public have been obsessed with low interest rates and interest rate cuts for too long; it's time to adapt to the 'new normal',” Sentance said. I think Wednesday will have a big impact if market expectations are in line with the survey.”

The outgoing Bank of England Deputy Governor Ben Broadbent supported expectations of interest rate cuts in June or August on Monday. “The MPC will continue to learn from upcoming data, and if things continue to evolve with their predictions (which suggest policies will have to be less strict at some point) then bank interest rates may be lowered sometime during the summer,” he said in a speech.

Given that the central bank expects inflation to be declared close to 2.0%, his assumptions and expectations about impending interest rate cuts may be disrupted.

Sentance said, “Ben Broadbent hinted in his last speech at the Bank of England that he is in favor of cutting interest rates this summer. Broadbent succeeded me as an MPC member 13 years ago and then became Vice President. He has always been very dovish and defended ultra-low interest rates in the 2010s. So it's not a surprise in this final speech.”

Based on the above news, it can be seen that if the UK's CPI rises unexpectedly in April, suppressing the probability of interest rate cuts, the pound will be supported. However, if inflation falls below expectations, it will trigger the possibility of continuous interest rate cuts, and the pound may fall sharply, and investors need to keep an eye on this.

GBP/USD daily chart

At 11:47 Beijing time on May 22, GBP/USD was reported at 1.2711/12