WS #10002

UK inflation unexpectedly held steady at 2.8% in May, defying expectations of a rise to 3%, as the Iran conflict's impact on fuel prices was offset by slower food price rises. This is a significant dovish surprise for the Bank of England, which meets Thursday, and reduces the probability of a hawkish tilt. The data supports UK gilts and GBP, and dampens the bearish UK macro thesis. Separately, the G7 summit continues to produce statements, including a commitment to disrupt economic infrastructure enabling illegal activities and a task force on institutional infiltration by drug trafficking networks, but these are incremental and not market-moving. The dominant theme remains the US-Iran peace deal, with oil falling as the deal is set to add supply, and gold holding gains. The UK CPI miss is the most actionable new signal in this window, as it directly impacts BoE rate expectations and UK asset prices. The narrative arc for the US-Iran deal is STABLE (deal signed, implementation underway), while the UK inflation narrative is now DE-ESCALATING (inflation surprise lower, reducing rate hike pressure).