Inflation unexpectedly holds steady at 2.8% in May

UK inflation surprised on the upside in May, with the Office for National Statistics reporting a 2.8% annual rise, unchanged from April and below economists’ forecasts for a 3% print. The services sector continued to pull higher at 3.7%, a sign of domestic price pressures even as energy costs eased following a US-backed deal aimed at ending the Iran conflict. Markets had anticipated a BoE rate hold at 3.75%, but the energy thaw and potential oil supply relief have raised questions about future hikes. An upcoming July price cap increase to 13% is expected to add roughly 0.4 percentage points to inflation, Bloomberg Economics notes.

Officials face a balancing act between a weak labor market and stubborn inflation, with policymakers watching domestic and global developments for clues on the trajectory of monetary policy.