UK inflation rate finally hits target! UK inflation rate finally hits target!

Data released on Wednesday showed that the UK’s inflation rate rebounded to the Bank of England’s 2% target in May—the first time in nearly three years. However, underlying price pressures remain strong, meaning the Bank of England may need to wait longer before cutting interest rates. Although the May decline in headline inflation will be welcomed by Prime Minister Rishi Sunak and the Bank of England, it may come too late to reverse Sunak’s electoral fortunes ahead of next month’s election—or prompt the Bank to cut rates on Thursday. According to the UK Office for National Statistics (ONS), services inflation—a measure the Bank considers more reflective of medium-term inflation risks—stood at 5.7% in May, down from 5.9% in April but not as sharply as economists’ survey forecasts of 5.5%. Following the data release, the pound rose modestly against both the US dollar and the euro. Michael Brown, Senior Research Strategist at brokerage Pepperstone, said, “(Bank of England) Governor (Andrew) Bailey is probably the happiest person in London this morning,” but added that the Bank is likely to wait until August before cutting rates. The annual consumer price inflation rate fell to 2.0%, down from 2.3% in April—matching economists’ expectations—and marking its lowest level since July 2021. It also represents a sharp drop from the 41-year high of 11.1% recorded in October 2022. The Bank of England stated that inflation returning to target is not yet sufficient grounds to begin cutting rates. Martin Sidoris, Chief Economist at the Confederation of British Industry (CBI), noted: “Policymakers still need to weigh the decline in overall inflation against signs that domestic price pressures—such as accelerating wage growth—are easing more slowly.” Most economists expect the Bank to begin cutting rates from its 16-year high of 5.25% starting in August. Financial markets, however, assign higher probability to the first cut occurring in September or November—and see less than a 10% chance of a cut this week. Yongzheng Investment, 1 like The UK Office for National Statistics said on Wednesday that UK house prices rose for the second consecutive month in April, climbing 1.1% year-on-year to an average of £281,000 ($358,000), following a 0.9% rise in March. ONS data also showed private-sector rents rose 8.7% over the year to May—slightly slower than the 8.9% increase over the year to April. In recent months, the UK housing market has shown signs of recovery from the slowdown triggered by the sharp rise in mortgage rates at the end of 2022 and throughout 2023. Yet the decline in consumer price inflation has boosted household real incomes and improved the outlook for rate cuts. Princess Kate recently made a radiant official return, shining like a brilliant star alongside her three children at the UK’s Royal Trooping the Colour ceremony. After six months of rest and recuperation, she now appears fully recovered, standing warmly beside her husband Prince William with their three adorable children—a heartwarming and harmonious tableau. Princess Kate’s return marks not only a key element of the Royal Family’s official public engagement schedule, but also a significant personal milestone.

Global central banks sound the anti-inflation ‘call to arms’: the ECB and BoJ hike in unison; Fed’s autumn tightening risk surges.

The European Central Bank’s (ECB) decision to raise rates last Thursday was unanimous. In its statement, ECB President Christine Lagarde noted that inflationary shocks stemming from the Iran conflict have exceeded earlier expectations—“waiting for hostilities to subside before acting is no longer a viable option.” Eurozone inflation rose to 3.2% in May, significantly above the 2% target. The ECB’s latest official forecast raised its full-year 2026 inflation projection to 3.0%, and under a “severe scenario,” it could reach 4.0%. At the same time, the ECB lowered its growth forecasts for 2026 and 2027 to reflect the combined impact of commodity market shocks, shrinking real incomes, and eroded market confidence. Markets widely expect the ECB to deliver another 25-basis-point hike in September, continuing its current tightening cycle. The Bank of Japan’s (BoJ) rate hike this week is equally momentous: the BoJ decided to raise its policy rate from 0.75% to 1.0% at its meeting on June 15–16—the highest level since September 1995. Japan’s journey has been long: it introduced negative interest rates in 2016, officially exited them in March 2024, and delivered its first hike in 17 years. Japan’s May Producer Price Index (PPI) rose 6.3% year-on-year—the fastest pace in three years—with energy and coal costs surging 13.8% and chemical products up 13.4%, reflecting persistent upstream cost pressures flowing downstream into manufacturing. According to Bloomberg’s survey of 44 economists, roughly 90% expect the BoJ to raise rates again before its December meeting—52% anticipate action most likely in December, 36% point to October, and nearly one-quarter believe the earliest possible timing could be September. With the BoJ’s move joining signals of tightening from Federal Reserve officials and the ECB’s already-executed hike, the global landscape of major central banks entering a tightening cycle has become increasingly clear. The Bank of England holds steady tonight; year-end hike expectations persist The Bank of England is widely expected to hold its benchmark rate unchanged at 3.75% at Thursday’s meeting—a stance aligned with the Federal Reserve’s pause on Wednesday, but markedly divergent from the ECB and BoJ. This expectation rests largely on the UK’s latest inflation data: May CPI rose 2.8% year-on-year, unchanged from April and below the 3.0% forecast in The Wall Street Journal’s economist survey. Ian Corfield, CEO of Secure Trust Bank, commented: “This reading suggests inflation remains broadly on track, giving policymakers confidence to maintain the current rate”; he cautioned, however, that energy-related price pressures may continue to seep through over time. The Bank of England has held rates steady since December last year. Although no change is anticipated at this meeting, amid persistently high global energy prices and broad-based tightening by major central banks, market expectations for a UK rate hike before year-end remain intact. Powell turns hawkish; Fed’s autumn tightening risk surges Inflationary pressure continues mounting on the Fed’s core policymaking circle. US CPI rose 4.2% year-on-year in May—the first time in three years it has breached the 4% threshold. Elevated energy prices were the primary driver: US household energy bills have risen roughly 12% cumulatively since January 2025.

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