United Kingdom: Inflation Holds, BoE Decision Looms, Fiscal Pressures Build

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UK Inflation Remains Stubborn: UK inflation data for May shows headline CPI at 3.4%, down slightly from April’s 3.5%. Core and services inflation both ease modestly, with services inflation at 4.7%, helped by lower transport costs. However, food prices continue to rise, and markets remain wary about lingering price pressures.

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BoE Poised to Hold Rates: The Bank of England is widely expected to keep the base rate at 4.25% at its June 19 meeting. A 6–3 split vote is anticipated, with some members likely favoring cuts, but Governor Andrew Bailey signals a cautious tone, suggesting that rate cuts remain possible but not imminent. Markets interpret this as a hawkish hold.

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Fiscal Stress and Geopolitical Headwinds: Public sector borrowing remains elevated, while infrastructure projects like HS2 face delays, reflecting budget constraints. Simultaneously, ongoing military and foreign aid commitments, particularly regarding Ukraine, amplify fiscal pressure. Energy markets respond to renewed tensions in the Middle East, pushing up oil prices and complicating the inflation outlook.

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United States: Inflation Cools, Fed in Focus, Dollar Softens

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U.S. Inflation Comes in Soft: The May U.S. CPI report shows headline inflation rising just 0.1% month-over-month and 2.4% year-over-year, coming in softer than forecast. Core inflation slows to 2.8%, reinforcing market expectations that the Federal Reserve may cut rates later this year.

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Producer Prices Echo Disinflation Trend: The U.S. PPI (Producer Price Index) also surprises to the downside, showing muted price pressure across manufacturing and services. This aligns with Fed messaging and adds to the case for a policy pivot by the fall.

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Dollar Slides on Risk-On Sentiment: Global risk appetite improves amid a ceasefire agreement between Israel and Iran, and falling oil prices boost equities. The U.S. dollar weakens across major pairs as investors move into risk-sensitive assets. The pound benefits from this shift, particularly as the BoE maintains a more hawkish stance than the

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