Inflation in the UK has slowed slightly, as expected,The consumer prices index rose by 3,4% year on year in May, down from 3,5% in April, according to the Office for National Statistics,This was bang in line with City economists’ forecasts.

The central bank’s target is 2%.The core rate, which excludes energy and food, fell to 3.5% from 3.8%, also as expected.The Consumer Prices Index (CPI) rose by 3.

4% in the 12 months to May 2025, compared with 3.5% in the 12 months to April.Read the full article ➡️ https://t.co/m9vpk5oFn3 pic.twitter.

com/DtOjwdagzvThe largest downward contribution came from transport; the largest, partially offsetting, upward contributions came from food, and furniture and household goods, the ONS said.European gas prices are rising for a sixth day, as traders worry that an escalating conflict between Israel and Iran could disrupt global energy flows.European natural gas futures jumped above €39 per megawatt hour, the highest in more than ten weeks.The Dutch benchmark rose by 1.5% to 39.

805 MWh.Tensions heightened after Donald Trump urged the evacuation of Tehran and dismissed peace talks.The US president wrote on social media that the United States knows the location of Iran’s leader Ayatollah Khamenei, adding that the US would not kill him “for now” but called for Iran’s “unconditional surrender”.While Europe currently has enough gas supplies, its reliance on global liquefied natural gas makes it vulnerable to geopolitical shocks.A big concern is the Strait of Hormuz, through which a fifth of global LNG and oil shipments pass.

If Iran blocks the waterway (the only sea passage from the Persian Gulf to the open ocean), Qatari exports, which account for nearly 4% of Europe’s gas, could be affected,So far, Quatar says navigation remains normal,Hotter than usual temperatures across Europe are boosting demand for air conditioning, ramping up energy demand,The pound has gained nearly 0,3% against the dollar, trading at $1.

3461, while the euro is up by more than 0.3% against the greenback, at $1.1515.On the stock markets, the FTSE 100 index is 20 points ahead at 8,854, up 0.2%.

Germany’s Dax is slightly in the red at 23,419 and France’s CAC is up by a smidgen, while Italy’s FTSE MiB index has added 0.25%.In financial markets, the dollar is falling against most major currencies, as the latest developments in the Israel-Iran conflict left investors nervous – ahead of the US Federal Reserve’s interest rate decision later today.Israel has pounded Iran over the past six days, with strikes against nuclear and military sites and the assassination of top nuclear scientists and military leaders, and is pushing for regime change in the Islamic Republic.Israel’s defence forces said they launched a fresh wave of strikes on Tehran in the early hours of Wednesday morning, warning residents in parts of the city to urgently evacuate.

The US military is deploying more fighter jets to the Middle East, Reuters reported, sparking speculation of US intervention that investors fear would widen the conflict.The dollar fell by nearly 0.3% against a basket of major currencies.It has lost more than 8% so far this year as confidence in the US has waned due to Donald Trump’s sweeping trade tariffs and other policies.Currency strategist Rodrigo Catril at National Australia Bank told Reuters:The dollar is still a safe haven because of its depth and liquidity, so yes the structural forces are diluting the dollar safe-haven activities, but they’re not eroding them completely.

But in a scenario of big risk aversion, the dollar will still gain support but maybe not to the same extent it has managed in the past,The latest UK inflation data showed that the annual rate for goods inflation rose from 1,7% to 2% in May, while the services annual rate slowed from 5,4% to 4,7%.

The latter is closely watched by the Bank of England, as the UK economy is dominated by the service industries,Sanjay Raja, chief UK economist at Deutsche Bank,The focus now will turn to geopolitical events and the rise in energy prices,This will undoubtedly complicate the monetary policy committee’s task,Higher energy prices will mean higher inflation expectations,The trump card? The labour market data.

The ongoing labour market loosening should give the MPC a little more confidence in its ‘gradual and careful’ approach to dialling down restrictive policy,And crucially, today’s data should help convince MPC members on the fence that price pressures are tracking as expected and underlying disinflation remains on track,But don’t expect a dovish pivot just yet – more data and more accumulation of evidence that the economy is returning to a sustainable equilibrium will be needed to push the MPC into a more dovish direction,Inflation pressures remain sticky in the UK, according to Rob Wood, chief UK economist at Pantheon Macroeconomics,Looking ahead, we continue to expect CPI inflation to average 3.

4% for the rest of the year as strong wage growth, minimum wage hikes and tax increases pass through to retail prices.We think headline inflation will struggle to dip below 3% before April 2026.By that point, inflation will have been above target almost continuously for five years, risking further deanchoring of inflation expectations and persistent wage pressure.Granted, US president Trump’s trade war could lead to some diversion of Chinese exports previously bound to the US, which could cut UK inflation.But war in the Middle-East has boosted oil and natural gas prices, adding 10bp to our forecast inflation peak and risks probably lie to the upside.

We think the MPC will have to proceed cautiously.We expect just one more rate cut this year in November, though after last week’s dovish labour market and growth data August looks like a better bet for now.Either way, we think one more rate cut this year is the right call because of sticky inflation, and we expect rebounds in GDP and job growth to give a more hawkish tint to the data flow heading into the monetary policy committee’s August policy meeting.For this week’s MPC meeting a hold is all but guaranteed and we expect little change in guidance.Dr Liliana Danila, lead economist at the Food and Drink Federation, explains the rise in food costs, with further increases to come.

Food and drink inflation shot up in May 2025, reaching 4.4% compared to 3.4% in April.These figures are being driven by rising energy and ingredients costs.Food manufacturing is an energy intensive sector, and wholesale gas prices are 7.

8% higher compared to last May, as UK businesses face significantly higher industrial energy costs compared to other nations.Meanwhile, the price of ingredients has also surged.For example, in the last two years, the price of cocoa has tripled, while wholesale butter prices are also 55% higher than last year.Recent and upcoming regulations are also bringing additional costs to manufacturers.With these price increases being coupled with a drop in consumer confidence and a fall in retail sales, food manufacturers have been absorbing rising costs for several years.

Recent geopolitical uncertainty is also likely to result in higher pressure on energy and imports, and so unstable manufacturing costs are likely to persist,As a result, we now expect to reach our forecast of 4,8% food and drink inflation for December sooner than anticipated,While UK petrol and diesel prices fell last month, this could be short-lived,A sharp rise in crude prices triggered by the Israel-Iran conflict is likely to lead to higher prices at the pumps.

Oil prices are little changed at the moment, after rising sharply in recent days following Israel’s surprise attack on Iran on Friday, which prompted Iran to retaliate with its own missile strikes.Brent crude, the global benchmark, is trading above $76 a barrel, at $76.38.It’s around 10% higher than before Israel’s attacks on Iran, at levels not seen since February.Susannah Streeter, head of money and markets at Hargreaves Lansdown, said:Already it appears some ships are avoiding the region.

There’s not an exodus yet, but companies are operating with extreme caution, and a closure of the strait would disrupt global supply chains.Just as sticky inflation is already a concern the surge in energy prices and a potential ramp up in shipping costs is set to cause more trouble.It’s certainly an extra headache for policymakers deciding on interest rate cuts this week.Consumer Price Inflation hasn’t budged in the UK, coming in at 3.4% for May.

This was expected and although this is a slightly better scenario than another ramp up in price increases, it’s unlikely to persuade more decision makers to vote for a rate cut tomorrow.Higher crude prices are set to lead to more expensive prices at the pumps, and potentially increased transport bills.Natural gas prices have also risen amid the geopolitical instability, given the potential disruption of LNG shipments from Qatar, which is the third largest global exporter.A long, drawn-out conflict could keep prices elevated, which would have a knock-on effect on electricity prices, increasing energy bills for consumers and companies later this year, just as they had hoped lower costs were here to stay.Nevertheless at least two more interest rate cuts are expected from the Bank of England this year, with the chances of a reduction in August bulking up a little.

Rachel Reeves said there was “more to do” to bring down inflation and help with the cost of living,The UK chancellor said the government’s “number one mission is to put more money in the pockets of working people”,We took the necessary choices to stabilise the public finances and get inflation under control after the double-digit increases we saw under the previous government, but we know there’s more to do,Last week we extended the £3 bus fare cap, funded free school meals for over half a million more children and are delivering our plans for free breakfast clubs for every child in the country,This government is investing in Britain’s renewal to make working people better off.

Meanwhile, the shadow chancellor Sir Mel Stride, from the opposition Conservative party, said:This morning’s news that inflation remains well above the 2% target is deeply worrying for families,Labour’s choices to tax jobs and ramp up borrowing are killing growth and stoking inflation - making everyday essentials more expensive,Here’s our full take,The inflation figures come a day before the Bank of England announces its latest interest rate decision, with markets expecting no change at noon tomorrow,Traders have pencilled in a 10% chance of a cut.

A reduction in August seems more likely,Markets are still expecting two more quarter point cuts to the base rate by the end of the year, from its current 4,25%,Food and non-alcoholic drink prices have picked up, though – rising by 4,4% in the 12 months to May versus 3.

4% in April.This was the highest rate of food inflation since February last year, when it was 5%.The price of chocolate, confectionery and ice-cream rose between April and May but fell between the same months a year ago.Meat prices rose by more this year than this time last year.Prices of furniture and household goods rose by 0