British equities moved modestly lower on Wednesday as official inflation data for May showed headline consumer prices unchanged from April, but a stickier services component kept the Bank of England cautious ahead of its policy meeting.
At 03:25 ET (07:25 GMT) the FTSE 100 was down 0.13%. Germany's DAX fell 0.39% and France's CAC 40 slipped 0.03%. Sterling retreated 0.10% against the U.S. dollar to $1.3418.
Inflation details
The Office for National Statistics reported that the consumer price index rose 2.8% in the 12 months to May, unchanged from April and below economists' expectations of a rise to 3%. On a monthly basis, prices increased 0.2%, matching the prior month's rate.
Transport costs were the main upward contributor to headline inflation, with air fares surging 10.3% between April and May. By contrast, food and non-alcoholic beverages weighed on the headline figure: annual food inflation slowed to 2.2%, its lowest level since December 2024.
However, the services inflation measure showed renewed strength, accelerating to 3.7% from 3.2%. Analysts highlighted this persistence in services prices as a potential constraint on how much the pound might fall and as a factor that could keep the Bank of England cautious when it convenes on Thursday. Markets had already pared back expectations for additional BOE rate hikes over the past two weeks.
Commodities and broader market context
Brent crude tumbled to a fresh three-month low below $79 a barrel, while WTI crude slipped more than 1%, extending a decline seen on Tuesday. Traders continued to price in the partial reopening of the Strait of Hormuz ahead of the planned formal signing of a U.S.-Iran agreement expected later in the week. Despite the pullback, oil prices remain above an approximate pre-conflict level of $65 a barrel.
Spot gold moved lower by 0.05% to $4,329.16 an ounce.
These moves in energy prices were already influencing central bank thinking on both sides of the Channel, with some easing in crude cited as reducing inflationary pressure that built after the Middle East conflict began.
Geopolitical backdrop
At the G7 summit in France, U.S. President Trump reiterated criticism of Israel's actions in Lebanon, saying it had been fighting Hezbollah "too long" and calling for greater responsibility from Prime Minister Netanyahu. He added that "too many people are being killed." The comments came as the U.N. peacekeeping mission in Lebanon reported a "significantly reduced level" of violence along the border, although Lebanese state media said Israeli strikes killed at least four people on Tuesday.
Iran's military warned Israel of a "harsh response" if its Lebanon offensive continues. Iran's foreign minister described the Lebanon fighting as "linked and interdependent" with the wider agreement, while a senior official said the deal does not require an Israeli withdrawal. President Trump said he would release the agreement text "in a couple of days" and send it to Congress for review; the White House said sequencing was intended to address sensitivities in the Arab and Muslim world.
UK corporate developments
In the corporate sphere, Hays completed the sale of its operations in six European countries to Meraki Capital for net cash proceeds of around around
AO World reported a 16% rise in annual adjusted pretax profit and proposed
PZ Cussons lifted its profit forecast for the fourth time and now expects 2026 adjusted operating profit at or slightly above the top of its range of
What this means for markets
Headline inflation holding steady at 2.8% alongside rising services inflation presents a nuanced backdrop for monetary policymakers and investors. The stickiness of services prices could keep the Bank of England cautious even as energy price declines ease broader inflation pressures. Market pricing for BOE moves has already moderated in recent weeks, but the services reading may limit how much the pound weakens in the near term.
Energy-price volatility and geopolitical developments remain key watchpoints for markets. The expected formalisation of the U.S.-Iran agreement later in the week and any further shifts in violence around Lebanon will likely influence oil markets and risk sentiment.
Bottom line
The snapshot from May inflation data suggests a mixed picture: headline inflation steady and below some expectations, but services inflation proving more persistent. That combination appears to have given investors pause ahead of the Bank of England decision and is interacting with evolving dynamics in global energy markets and regional geopolitics.