GBP flows: EUR/GBP lower after CPI, but support at 0.86

Stronger than expected UK July CPI renews upward pressure on GBP, but it will still be difficult for EUR/GBP to break below 0.86, as there is already very little easing priced into the UK curve, with less than 50bps expected by the end of 2026. The rise in CPI to 3.8% y/y (both headline and core) was due in large part to the strength of air fares, which is unlikely to persist, reducing the implications for policy. Also, the weaker equity markets overnight may reduce the attraction of GBP and the other riskier currencies, so we doubt that GBP will be strong enough for EUR/GBP to break convincingly below 0.86.