New inflation data due out today is set to provide a stark illustration of the economic shockwaves caused by the recent US-Iran conflict, with City analysts predicting a 0.2 percentage point rise in the Consumer Price Index (CPI) to 3.0% for May, up from April's 2.8%. This anticipated increase is primarily attributed to the oil price spike that resulted from the Middle East tensions, with Brent crude consistently trading above $110 throughout May.
The impact on UK consumers was pronounced, with the average price of unleaded petrol reaching a high of 158.52p in May – its highest point since the Iran conflict began, according to the RAC. Although Brent crude prices have softened in recent days following reports of a fragile peace deal between the US and Iran, economists warn that the inflationary consequences of the preceding months could still linger, exerting a prolonged influence on the UK economy.
Adding to these concerns, household inflation expectations reached a record high in the second quarter, with a joint survey by the Bank of England and Ipsos revealing that, on average, households anticipate inflation to rise by 3.9% over the next five years – the highest reading for long-term inflation expectations since data collection began in early 2009.
The persistent inflationary pressures, fuelled by global events, pose a challenge for policymakers seeking to stabilise the economy while managing the cost of living for households across the UK. The Office for National Statistics' (ONS) data will be closely scrutinised for signs of how deeply these external shocks have permeated the domestic economic landscape.