British inflation unexpectedly held at 2.8% for May, unchanged from the 13-month low reached in April, official figures showed on Wednesday, a day before the Bank of England will announce its next interest rate decision.

Impact on the Economy

Sterling weakened a little against the U.S. dollar after the data and investors slightly trimmed their expectations for a rate rise later this year. Economists polled by Reuters had forecast a rise to 3.0% for May, as the U.S.-Iran war kept British inflation almost a percentage point higher than the BoE had forecast in February.

Lower prices than in April for meat, vegetables and dairy products as well as domestic heating oil helped offset a jump in airfares and petrol, the Office for National Statistics said. UK inflation has been above the BoE’s 2% target for most of the past five years.

Market Reaction

Financial markets this week have drawn comfort from an interim agreement between the U.S. and Iran which promises to reopen the Strait of Hormuz, a major corridor for oil exports, and is due to be signed in Switzerland on Friday. “Today’s data strengthens the case for a continued cautious approach from the Bank of England,” Yael Selfin, chief economist at KPMG, said.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.