Surprisingly benign UK inflation data signals a softer Iran war hit than feared

UK inflation held at 2.8% in May, below expectations of a rise to 3.0%, easing fears that the Iran/Hormuz oil shock will feed through into broader price pressures and forcing markets to trim the odds of further BoE tightening. Motor fuel prices were still up 25% y/y, but food prices fell 0.1% m/m, suggesting spillover into the wider economy has been limited so far. The read-through for rates is softer: economists downgraded inflation forecasts and market pricing has shifted the next BoE hike from September toward November, with the article even flagging that the next move could ultimately be a cut if growth and jobs weaken. That kind of lower-rate backdrop is modestly supportive for gold via lower real-yield expectations and a softer policy path. Near term, the key catalyst is Thursday’s BoE decision, with the market already expecting no change at 3.75%. If follow-through UK data continue to undershoot, sterling rates should stay under pressure and bullion should retain support from the easier policy impulse; a renewed oil spike would be the main risk to that view.