“While inflation was unexpectedly unchanged in May, aided by lower food costs, these figures have been surpassed somewhat by fresh hopes of easing inflation following the US-Iran peace deal.
“Rising services inflation may well sharpen Bank of England fears that the Iran conflict has embedded price pressures more widely across the economy, though a deteriorating labour market will help curb any second-round effects.
“Although the US-Iran peace deal has arrived too late to stop higher energy bills and food costs triggering a summer inflation spike, if oil prices continue sinking then a peak well below 4% is becoming increasingly plausible.
“Even with hostilities seemingly over, the UK faces a painful hangover from the Iran conflict, with energy and other supply chains likely to take months to normalise, delaying any meaningful easing in inflation until late 2026.
“May’s softer than expected data means an interest rate hold on Thursday is now nailed on, especially as the US–Iran peace agreement has raised hopes that, if the deal holds, inflation could ease without the need for further policy tightening.”
ENDS
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