UK inflation remained steady at 2.8% in May, higher than expected, but the market was comforted by the US-Iran agreement

(1) The UK’s inflation rate in May was recorded at 2.8%, matching the 13-month low reached in April but lower than economists’ previous expectation of 3.0%. Due to the impact of the US-Iran war, the UK’s inflation rate remains nearly 1 percentage point higher than the central bank’s forecast made in January. (2) The UK’s reliance on imported natural gas makes it more severely affected by the conflict than most Western countries. In April, the Bank of England stated that inflation could exceed 3.5% by the end of the year, and in the worst-case scenario, might break above 6% early next year. (3) However, this week financial markets were reassured by the prospect of the US and Iran reaching an agreement to reopen the Strait of Hormuz. Economists expect that the Bank of England’s Monetary Policy Committee will keep interest rates unchanged at 3.75% this month, with a 7-2 vote. The inflation data was released a day before the central bank’s interest rate decision.