Inflation Remains Unexpectedly Flat Ahead of Bank of England Meeting -- Update

Inflation remains steady ahead of the Bank of England meeting, with the headline rate holding at 2.8% in May, the ONS said. Economists polled by The Wall Street Journal had expected 3.0%. Energy prices continued to push the rate higher as motor fuel costs rose 25% year over year, while services prices also climbed, signaling broader pass-through from energy costs. The anticipated 13% July energy-price cap rise suggests pressures will linger even after a U.S.–Iran deal to reopen the Strait of Hormuz offered some relief. Traders expect the BoE to hold the policy rate at 3.75% on Thursday. Analysts say non-energy inflation and wage dynamics will drive the decision, with Yael Selfin of KPMG UK noting that motor fuel costs may ease as energy prices fall, though the broader energy shock remains. Pantheon Macroeconomics has pushed back its July rate rise forecast, suggesting the BoE could hold through 2026 and 2027 in a softer scenario. The ECB's recent rate hike highlights Europe’s divergent path, while the UK and euro area remain net energy importers exposed to price swings. The BoE’s cautious stance matches expectations that inflation will peak later and ease gradually, barring a new energy shock.