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US blockade of Iran is over

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It’s official. The ​US ‌military has lifted its blockade of maritime traffic entering ‌and ‌exiting Iran.

US Central Command shared the news in a post on social network X on Thursday:

Today, U.S. forces lifted the blockade on all maritime traffic entering and exiting Iranian ports and coastal areas, in accordance with the President's direction. American forces are not impeding the transit of vessels to or from Iranian ports on the Arabian Gulf and Gulf of…

— U.S. Central Command (@CENTCOM) June 18, 2026

The blockade had been in place since mid-April. Its lifting follows the peace deal Donald Trump signed with Tehran on Wednesday.

On Thursday, Brent crude oil fell below $78 per barrel - the lowest level since early March.

Former OBR chair ‘advising Andy Burnham’

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Labour leadership hopeful Andy Burnham alarmed investors with his remark that Britain was too “in hock” to the bond markets last year.

Now, it seems the Greater Manchester mayor, who fancies himself as Sir Keir Starmer’s successor, is taking advice on how not to upset those same markets again. 

Richard Hughes, the former chairman of the Office for Budget Responsibility (OBR), has been advising Mr Burnham on how investors will interpret his policies since the start of this month, according to the Financial Times.

It’s an intriguing report because Mr Hughes, who also previously worked in the Treasury, has a reputation as a scrupulously impartial civil servant.

However, he did previously work as a researcher for the Resolution Foundation, a natural hunting ground for Labour politicians when they recruit advisers.

He left the OBR in December following an embarrassing debacle that saw the budget watchdog accidentally publish documents revealing details of the Budget before Rachel Reeves, the Chancellor, had delivered it.

Bank decision to hold rates ‘paves way for cheaper mortgages’

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Mortgage lenders are expected to make more rate cuts in the coming weeks after the Bank of England base rate remains on hold, finance experts have said.

The base rate was kept at 3.75pc as the Bank cautioned the cost of living is still set to rise this year amid the fallout from the Iran war.

Mortgage rates initially jumped during the conflict but many lenders have been making cuts in recent weeks, including Barclays, which said it is set to make further reductions on Friday.

Simon Gammon, managing partner at Knight Frank Finance, said: 

The Bank of England’s decision to hold rates, combined with weak pay growth and lower-than-expected inflation, will pave the way for mortgage lenders to cut rates over the coming weeks.

While we are unlikely to see a dramatic fall in mortgage rates, borrowers should benefit from a gradual improvement in deals over the summer, which will help support housing market activity later in the year.

Trump fast-tracks power for AI data centres

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The Trump administration has pushed through plans to let data centres quickly hook themselves up to the US power transmission grid as tech companies race against their Chinese rivals to develop AI.  

On Thursday, the Federal Energy Regulatory Commission approved the administration’s proposal to help accommodate surging demand.

The change means large energy users such as data centres, run by AI giants such as ChatGPT owner OpenAI and Claude owner Anthropic, will be able to get their bids to connect to the transmission system fast-tracked. 

Donald Trump was pictured sitting next to OpenAI boss Sam Altman and Demis Hassibis, the British boss of Google Deepmind, at a G7 working dinner on Wednesday. 

Chancellor: I want spades in the ground at Heathrow by election

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Rachel Reeves says she wants “spades in the ground” for a third runway at Heathrow by the time of the next general election.

On Thursday, the Chancellor said the airport was currently not “punching its weight” and its stalled expansion had become emblematic of Britain’s problem with “being able to get stuff done.”

Speaking at the Times CEO Summit in London, Ms Reeves added:

Somebody had to bite the bullet and say, ‘Do you know what? We are actually going to pick a fight, choose that fight, and win it’. And in the last 18 months, we’ve made more progress on Heathrow than the last government made in 14 years.

And I am determined that by the time of the next election, there are spades in the ground, and people can see that once again this is a country that can get things done, that is confident in ourselves, not just in our past glories, but in our future success too.

However, the Chancellor’s bullish approach may run into opposition from within her own party if Andy Burnham secures a by-election win today and challenges Sir Keir Starmer for the Labour leadership.

Mr Burnham has opposed Heathrow expansion.

Plan for Heathrow expansion published

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Ministers have published a blueprint for a third runway at Heathrow, describing expansion of the airport as “critical to national growth.”

The consultation unveiled by Heidi Alexander, the Transport Secretary, on Thursday sets out conditions the Government says any project must meet to be approved.

The airport’s owners – Heathrow Airport Limited – are seeking permission for a £33bn scheme to build a full-length, 3,500-metre runway that would require the M25 motorway to be moved. 

Thursday’s blueprint requires developers to show how the transport network would accommodate increased passenger numbers, as well as how it would comply with the UK’s legally-binding climate targets, air quality limits and noise restriction.

There have previously been reports that Sir Keir Starmer’s administration wanted to get the plans out before the result of the Makerfield by-election, the result of which could affect the Prime Minister’s future.

Andy Burnham, the Labour candidate in the snap poll and the mayor of Greater Manchester, has previously expressed concerns over Heathrow expansion, stating the plans divert infrastructure investment “away from the North.”

Think tank: Brexit has been damaging but EU deal ‘no silver bullet’

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Brexit was not the disaster some predicted but has damaged Britain’s economy, according to researchers at the respected National Institute of Economic and Social Research (NIESR).

Researchers said that a loss of GDP output due to the UK’s exit from the EU implied a loss of £50bn in government spending power and that the economy had underperformed since 2016. 

However, NIESR also said Britain would have faced “many of the same challenges” it does now both inside or outside the bloc and becoming more closely aligned again would deliver only “modest” gains. 

It would also not “fundamentally solve the deeper problems of weak productivity growth and an ageing population.”

The think tank’s comments come after Andrew Bailey, the Governor of the Bank of England, also warned that Brexit had hurt the economy

Ben Caswell, a senior economist at NIESR, says: 

While Brexit did not cause the economic collapse that some predicted prior to the vote to leave, it has still damaged the economy. It has raised barriers to trade with the EU, mainly through customs checks, rules of origin and regulatory frictions. The long period of uncertainty after the referendum also put a notable dampener on business investment.

Closer alignment [with the EU] could provide a modest improvement on the growth front, but it’s far from a silver bullet.

Pressure eases on mortgage market

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Mortgage lenders have seen their cost of borrowing fall after the Bank of England said it was “encouraged” by recent falls in oil prices.

Swap rates, which determine how mortgage lenders price their fixed rate loans, have fallen in the wake of the announcement that interest rates will be held at 3.75pc.

So called two-year Sonia swaps, which help price two-year fixed deals, have fallen from 4.12pc to 4.07pc since the rate decison, while five-year swaps have declined from 4.12pc at midday to 4.09pc.

Frances Haque, chief economist at Santander UK, said: “While both global and domestic uncertainty means the outlook remains challenging both for the economy and the housing market, the good news is, the risk of a hike in Bank Rate in 2026 has been much reduced. 

“The mortgage market has been pricing down in recent weeks, with a growing number of sub 4pc fixed-rate products entering the market, which should help improve affordability and reinstate confidence in borrowers looking to move home this year.”

Bailey: Decade of Brexit proves it’s bad for the economy

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Andrew Bailey said the Bank of England had been vindicated in its warnings that Brexit would damage the economy.

The Bank’s governor claimed the institution’s longstanding view that reducing trade with the European Union would have a “negative impact on growth” had been proved right.

Asked whether leaving the EU had been good or bad for the economy, Mr Bailey said: “I think the level of activity and growth in the economy has been lower. And the reason for that is that if you reduce... the size of the markets that we trade with, so we reduce our export markets, then that does tend to have a negative impact on growth. It tends to have a negative impact on productivity and the size of the market.

“We learnt this from Adam Smith by the way. I’m not making this up.”

Mr Bailey added: “That was at the heart of the points that the Bank has been making for the last ten years. So we thought this would happen. And broadly, it has now.”

His comments came after the Bank voted to keep interest rates on hold at 3.75pc and as the decade anniversary of the vote to leave the EU approaches.

Mark Carney, Mr Bailey’s predecessor, was repeatedly criticised by Leave campaigners for his negative views of Brexit, including warnings that a vote to leave the EU could spark a recession.

Mr Bailey, who took charge of the Bank in 2020, has called for closer ties with the EU since the UK left and has backed Sir Keir Starmer’s “reset” with the bloc.

Speaking at a conference last month, Mr Bailey said: “We’re an open economy, we do need allies. I think seeking to rebuild trade relations with Europe is a sensible thing to do.”

It came as a separate report warned Brexit had reduced UK total exports to the EU by 12pc and imports from the EU by 16pc.

Analysis by the Centre for European Reform (CER) showed the UK’s travel sector saw the biggest drop in services exports, which slumped by 39pc, while the UK’s agricultural and food goods exports plunged by 29pc. 

The think tank warned that Sir Keir’s EU reset would do little to reverse this economic damage. The Prime Minister’s reset is focused on a series of targeted agreements that should ease frictions in sectors such as agriculture and food but will leave the vast majority of the Brexit trade losses unaddressed, CER said.

Bailey appeals for help over fake Farage fight images

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Andrew Bailey has appealed for help in identifying the people behind a bizarre social media posts showing him fighting Nigel Farage.

The Governor said he was “very concerned” about the fake images which depict him in a scuffle with the Reform leader.

He said: “They are fake, no doubt about that. I’m actually more concerned that they are attempted fraud on the public. 

“So I’m more concerned about people taking advantage of the public. I think people recognise that it’s very unlikely that either of us would be fighting in any circumstances. So it’s not that. 

“It’s the fact that they’re being used to defraud members of the public. So I’m very concerned about this. 

“We’re finding it very hard to identify who’s actually responsible for it, which I think is really important. And it’s really important. 

“So if anybody has any information on that, we want to know because any attempt to defraud the public is bad and we don’t want to see this happening.”

Petrol down 5p from Iran war peak

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Petrol prices have fallen by 5p a litre from their peak during the Iran war over hopes of peace in the Middle East.

Drivers are saving £3 a tank following the decline in unleaded, according to the RAC, boosting hopes that the inflation shock from the conflict will prove temporary.

Petrol prices have declined from 159.53p on May 28 to 154.72p, its lowest since early April.

Diesel prices have fallen even more dramatically, down 17p a litre from an April 15 peak of 191.54p to 174.3p, its lowest since March.

RAC head of policy Simon Williams said: “The rate of reduction ought to accelerate as the price of a barrel of oil has been under $80 for the last two days – something we haven’t seen since the start of March. 

“Drivers can now expect to see the average pump price of petrol drop below 150p in the next week or so, while diesel should drop back under 170p.

“If Brent crude stays at this level or reduces further, the longer-term picture at the pumps should get even better.”

Redundancy plans surge after tax raid

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Companies planned more redundancies last month than at any point since October 2020, in the latest sign of the economy’s weakness.

A total of 365 employers notified the Insolvency Service last month of plans to make 20 or more redundancies.

Between them, they proposed to make 35,533 staff redundant, the Office for National Statistics said.

That is up by 56pc compared with the same month of last year, and represents the largest number of planned redundancies in five and a half years.

The biggest increase came in distribution, hotels and restaurants, where more than 8,300 redundancies are planned, almost three-times the figure in the same month a year ago.

This sector has been particularly hard hit in recent years by jumps in the minimum wage and the rise in the National Insurance Contributions paid by employers on their workers’ pay packets.

It comes as private sector pay growth dropped again in April and the number of job vacancies declined, in further signs that underlying inflationary pressures in the economy may be ebbing despite the rise in energy costs caused by the war in Iran.

US stocks rise at the open

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Wall Street surged at the start of trading after Donald Trump signed his deal with Iran clearing a path to end the Middle East war.

The Dow Jones Industrial Average rose 0.8pc to 51,923.02 while the S&P 500 gained 1.1pc to 7,502.23.

The tech-heavy Nasdaq Composite leapt 1.4pc to 26,372.75.

All three indexes fell on Wednesday after the US Federal Reserve signalled it was open to raising interest rates later this year.

Growth has been lower since Brexit, says Bailey

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Brexit has been “nowhere near as detrimental” as people warned at the time of the EU referendum, Andrew Bailey has said.

The Governor of the Bank of England said activity and growth in Britain’s economy has been lower in the decade since the vote to leave the European Union.

However, he admitted that trade and markets would adapt “in the long run”.

He told broadcasters: “I have spent 10 years saying very clearly I’m a public official and I don’t comment on Brexit, per se. That’s a decision that the British people took in a referendum. Our job then was to get on and implement it and that’s what we’ve done.

“People then obviously then ask me the follow up question which is a perfectly reasonable follow up questions, which is: yes, but what’s been the impact of Brexit?

“I think the level of activity and growth in the economy has been lower and the reason for that is if you reduce the size of the markets that we trade with, so we reduce our export markets, then that does tend to have a negative impact on growth.

“That was at the heart of the points that the Bank has been making for the last 10 years, to say: we thought this would happen, and broadly it has developed as we thought.

“Now, in the long run, trade and markets adapt but the long run is hard to know.

“If we go back 10 years, people were saying this would be very bad for the City of London, very bad for Britain’s financial markets.

“Now, I’m not pretending it’s been good but I would say that I think it’s been nowhere near as detrimental as many people predicted at the time.

“A lot of people, the Bank of England included, have worked very hard over the last 10 years to make sure that didn’t happen and I think we have been able to reinforce why London is such an important financial centre and why Britain is such an important provider of financial services.”

Fewer firms raise prices despite Iran war shock

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Fewer companies raised their prices last month than in April, raising hopes that the jump in energy and fuel costs caused by the war in Iran might not lead to a fresh wave of inflation spreading through the economy.

In May, 13.2pc of companies increased prices charged to customers, according to the Office for National Statistics.

That is down from 15.8pc the prior month and compares with 11.1pc in February, before the conflict began.

It is also well below the 36pc of businesses which reported a rise in the cost of the goods they purchased, indicating that a large share are taking a hit in terms of lower profits or are finding other ways to avoid passing the costs on to their customers.

Andrew Bailey and his colleagues at the Bank of England are watching companies closely to judge whether or not the initial rise in energy costs caused by the blockade of the Gulf of Hormuz will lead to a wider rise in prices and wages across the economy.

But weak demand in the economy appears to be limiting companies’ ability to raise their prices.

Rates move depends on damage to oil and gas plants, says Bailey

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The Governor of the Bank of England said the next move on rates would partially depend on how quickly oil and gas infrastructure returns to production after being damaged in the Middle East war.

Andrew Bailey said it would be an overstatement to say he “mistrusts” the latest drop in energy prices after the US and Iran signed a deal setting out the terms for ending their conflict.

He said: “I am very pleased to see that this agreement has been reached. It’s good news but there is uncertainty around a number of other things. 

“We need to see it obviously settle down. I think everybody wants it to settle down and hopes it will. So we need to see that.

“Then the next step is we need to see the assessment of how much damage is being done to the infrastructure for supplying energy. That’s probably more of an issue for gas and oil, but again, we need to see that. I know there’s a much willingness and commitment to get supplies back online, and that’s good but we need to see that assessment. 

“The third piece, which is obviously the one we look at very closely – because it’s where our interest rate decisions have their most effect – is, yes inflation is higher than we thought it was going to be but are we going to get any persistence in terms of its impact on conditions in the UK?

“The economy has softened so that’s the backdrop against which I’m judging it.”

Bailey: I’m very encouraged

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Andrew Bailey said he was “very encouraged” by the recent fall in oil prices.

Speaking to broadcasters, he said: “We have had encouraging news. I mean, I’m very encouraged.

“We’ve obviously got now this understanding about what’s going to happen in the Middle East and energy prices have come down a lot but they are still above where they were before this conflict started.

“Inflation is higher than we expected it to be. I really believed we would have been back at the 2pc target by now.

“It is good news but now what we’ve got to do is get it back to 2pc. I think holding is the right position to be in at the moment for that.

“It is a sensible decision in light of the news. I am encouraged but we have now got to get inflation back down to 2pc.”

Next rate change ‘likely a cut’

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The next change to interest rates is “likely to be a cut” as many policymakers put a high bar on the need for higher borrowing costs, economists said.

James Smith of ING said Catherine Mann was the ⁠policymaker who appeared closest to joining ⁠Huw Pill and Megan Greene to vote for a rate rise.

She judged inflation risks were more prominent than the other MPC members who voted to keep rates on hold.

But in minutes of the decision she agreed there was time to wait as “a forceful Bank Rate decision can have a quick effect on inflation and inflation expectations”.

Deputy Governor Clare Lombardelli said the risk of damaging second-round inflation effects was increasing as high energy prices continued but so ​far the evidence pointed to a standard pass-through of higher energy prices.

Mr Smith said: “It feels like it would take a lot for the five more neutral-to-dovish voters to back a hike, barring a significant flare-up in the Middle East. 

“They appear increasingly confident that second round inflation effects are unlikely. And the data backs them up.

“For all the fears of second-round effects this time last year, when we had a bout of food inflation, plus higher employer taxes (lifting costs for firms) and a steep increase in the minimum wage, the latest CPI data doesn’t bear them out.”

He added: “We expect a prolonged pause and cuts to resume in 2027.”

Bank of England likely to hold borrowing costs this year, say economists

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The Bank of England is expected to keep interest rates on hold for the rest of the year, economists have said, as policymakers analyse the potential impact of recent peace deal between the US and Iran on energy prices.

Data released earlier this week which showed inflation coming in lower than expected has also given members of the Bank’s Monetary Policy Committee (MPC) more time before deciding whether to change rates, explained Sanjay Raja, chief UK economist at Deutsche Bank.

He added: “We think there is a growing consensus for a long hold given the more favourable economic and geopolitical backdrop.

“With data more favourable than expected, and an Iran/US deal in place, the need to act swiftly has reduced. The MPC can let the dust settle before deciding on its next course of action.”

Matt Swannell, chief economic adviser to the ITEM Club, said: “Faced with the prospect of a less severe energy shock than maybe feared three months ago and with half an eye on a labour market that’s creaking, there’s little cost for the Committee to hold off any decision on the future path of interest rates for the moment.”

‘Cut rates now to give economy some help’

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The Bank of England and Rachel Reeves are not looking at “the economy of reality”, Telegraph readers have said after interest rates were left unchanged at 3.75pc.

Here are some of their views on rates, the jobs market and inflation, and you can join the debate here.

UK borrowing costs ease after rate decision

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UK government borrowing costs eased slightly after the Bank of England announced it was keeping interest rates at 3.75pc.

The yield on two-year gilts, which are sensitive to interest rate movements, fell from 4.21pc to 4.19pc after the decision.

However, it remains higher than the closing price of 4.14pc on Wednesday after the US Federal Reserve signalled it was open to raising interest rates.

The 10-year gilt yield, a benchmark for what the Treasury pays to borrow money, was down from 4.78pc to 4.76pc after the decision, although it was also still up slightly on the day overall.

Jamie Niven, a fund manager at Candriam, said markets had taken Andrew Bailey’s comments as a signal the next move for rates would be downward.

The Governor said the fall in oil prices in recent days was “encouraging”.

Mr Niven said: “The majority of the committee view the domestic economic environment as sufficiently weak that there is little urgency to adjust monetary policy in response to higher inflation pressures in the near term. 

“Absent a renewed escalation of the conflict in the Middle East, we continue to believe the Bank of England will remain on hold at 3.75pc for the remainder of 2026.”

Policymakers push for ‘risk management’ rate rises

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The Bank of England’s chief economist said he was in favour of “prompt but modest action” on interest rates now as he voted for an increase in rates.

Huw Pill backed a hike from 3.75pc to 4pc for the second consecutive meeting of the Monetary Policy Committee (MPC) in the face of “volatile” global energy prices.

He was joined by Megan Greene, who also called for a rate rise as part of a “risk management strategy” to protect against the risk of inflation being fuelled by “second-round effects” like people demanding wage rises. The seven other MPC members voted for rates to stay on hold.

While oil prices have fallen 16pc so far this month, prices remain well above the levels before the Iran war, keeping petrol prices elevated.

Mr Pill said: “While overall UK financial conditions have tightened since the conflict began, I continue to favour prompt but modest action on Bank Rate now. 

“This would establish a stance of monetary policy that is well-placed to address the significant uncertainties the MPC faces.”

Ms Greene added: “Given significant uncertainty about the extent of second-round effects, we should pursue a risk management strategy.”

FTSE 100 falls after Bailey warning

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The UK’s stock markets fell further after Andrew Bailey warned Donald Trump’s deal with Iran had not removed “inflationary pressure” on Britain’s economy.

The FTSE 100 was down as much as 1.2pc while the mid-cap FTSE 250 declined 1pc as policymakers said the impact of the energy shock on the UK economy “remains uncertain”.

Rob Morgan, an analyst at Charles Stanley, said: “For now, the door to interest rate cuts is closed, and the one to rises remains ajar.”

Madison Faller of JP Morgan added: “Today’s Bank of England meeting was all about subtext, and the message was one of buying time.”

Pound slumps as Bailey warns of ‘inflationary pressure’

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The pound dropped sharply after Andrew Bailey warned there was still “inflationary pressure” on the economy despite Donald Trump’s deal with Iran over the Middle East war.

Sterling fell 0.6pc to $1.322 against the dollar as two policymakers voted to raise rates to 4pc, up from one at the last meeting in April.

It follows a 1pc drop on Wednesday after the US Federal Reserve signalled it was open to raising rates later this year.

The pound was down 0.2pc versus the euro to €1.153.

Suren Thiru, chief economist at ICAEW, said: “UK monetary policy currently sits at a crossroads as while the US–Iran peace agreement has raised hopes that inflation could ease without further tightening, any return to hostilities could quickly tilt the balance back towards rate hikes.

“Rate‑setters are likely to opt for a prolonged policy pause, and while the next move is now more likely to be a cut than a hike, it is unlikely to come before next year given the heightened global turbulence.”

Bank lowers forecasts for inflation

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The Bank of England said it now expected inflation to remain under 3pc for most of this year, before rising to a “little over” 3.25pc in the final quarter of 2026.

It is welcome news for Chancellor Rachel Reeves as it is far lower than the peak of 3.6pc the Bank predicted even in its most benign scenario in April.

Policymakers added that the 0.6pc growth at the start of this year was unlikely to be repeated, as it said underlying growth in the three months to June was likely to be closer to 0.2pc.

Governor Andrew Bailey warned that there were further signs that the jobs market was “further softening” as he signalled that he would be prepared to accept higher inflation for longer in order to support the economy.

However, fellow policymaker Megan Greene, who has previously highlighted that inflation has remained above the Bank’s 2pc target for much of the past five years, said the Bank’s own analysis showed that raising interest rates now would be less damaging to the economy that waiting until a wage-price spiral took hold.

However, the Bank suggested there was little evidence of this happening at the moment, with evidence that companies are struggling to pass on higher prices to customers.

The Bank’s own analysis said: “The risk of material second-round effects in price and wage-setting, against which policy needs to lean is greater the longer energy prices persist. But their labour market continues to loosen, and signs of a weakening economy could contain inflationary pressures.”

Mr Bailey added: “There has been a marked fall in energy prices in recent days, reflecting progress on talks involving the US and Iran. But the situation remains unpredictable, and there is clearly a risk that energy prices remain elevated for an extended duration.”

Bailey hails ‘encouraging’ drop in oil prices

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The Bank of England has held interest rates at 3.75pc amid growing prospects for peace in the Middle East.

Andrew Bailey welcomed an “encouraging” drop in oil prices, which the Governor said reflected Donald Trump’s peace deal with Iran.

However, Mr Bailey warned that the four month conflict meant further price rises remained inevitable amid a growing divide among policymakers over how to ward off higher inflation.

Policymakers voted 7-2 to keep interest rates on hold, with chief economist Huw Pill and Megan Greene calling for an immediate hike to 4pc.

Mr Bailey warned that the prolonged war mean had already left “inflationary pressure in the pipeline” as policymakers said “risks to energy prices were still skewed to the upside” despite the signing of a peace deal.

Commenting on the decision to hold, Mr Bailey said: “Oil prices have fallen in recent days, and that’s encouraging. But they’re still higher than before the war. Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline. 

“The Bank’s job is to make sure that doesn’t turn into sustained inflation above our 2pc target.”

Inflation pressure in the pipeline, warns Bailey

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The Governor of the Bank of England warned there was “inflationary pressure in the pipeline” despite the agreement between the US and Iran to end the Middle East conflict.

Policymakers voted by 7-2 in favour of keeping rates on hold at 3.75pc, saying they “stand ready to act” if inflation rises.

Andrew Bailey, Governor of the Bank of England, said: “We’ve held Bank Rate at 3.75pc today. Oil prices have fallen in recent days, and that’s encouraging.

“But they’re still higher than before the war. Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline.

“The Bank’s job is to make sure that doesn’t turn into sustained inflation above our 2pc target.”

Interest rates held at 3.75pc

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The Bank of England has kept interest rates on hold for the fourth consecutive meeting as policymakers assess the impact of the Iran war on the economy.

The Monetary Policy Committee (MPC) voted to maintain the Bank Rate at 3.75pc despite official figures showing inflation was weaker than expected in May at 2.8pc.

Oil prices have dropped by 10pc this week, easing inflationary pressures on the economy, after Donald Trump announced a deal with Iran, setting out a path to end the Middle East conflict.

However, traders have ramped up bets on rate rises later this year after stronger than expected data on Britain’s jobs market.

Market expectations have also shifted after the US Federal Reserve meeting on Wednesday evening, where officials indicated they expected interest rates to increase before the end of the year.

More policymakers could back rate rise

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Analysts think more rate setters at the Bank of England could vote in favour of raising borrowing costs, although most are still expected to be in favour of a hold.

The meeting follows the European Central Bank last week, which voted to raise rates to 2.25pc, and the US Federal Reserve, which kept rates on hold but signalled higher borrowing costs could be on the way.

Geoff Yu, senior market strategist at BNY, said: “The Bank of England is unlikely to follow the ECB in hiking rates as the doves and swing-voters on the Monetary Policy Committee are clearly unconvinced of second-round risks. 

“Bank of England Governor Bailey has been clear in his view that labour market slack and exigent tightening from changes in market pricing of rates should be sufficient to anchor inflation expectations for now, but there will likely be several dissenting votes in favour of a precautionary move.”

Fuel prices fall ahead of interest rate decision

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The Bank of England will make its interest rate decision as industry data shows petrol prices falling after the US-Iran deal setting out a path to end the Middle East conflict.

The AA said it had been “surprised by the speed of reductions” in prices at forecourts after oil prices dropped over the prospects of an agreement.

Brent crude has dropped by 16pc so far this month and has declined by more than 10pc since Donald Trump announced the agreement at the weekend.

Petrol prices have fallen from 159.7p a litre on May 28 to 155.1p on Wednesday. Diesel is down from 184.4p to 175.1p in the same period, according to the Oil Market Journal.

AA spokesman Luke Bosdet put the speed of reductions down to fuel finder apps which allow motorists to see what garages are charging for fuel in real time.

He said: “We have been surprised at the speed of the reductions and concluded that this is the influence of Fuel Finder: retailers seeing how much rivals are cutting their prices and, knowing that drivers can see the same information, having to respond.” 

Brent crude, the international benchmark, was last down 2.2pc to less than $78 a barrel on Thursday.

Wall Street poised to rise after US-Iran deal

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Wall Street was on track to open higher after Donald Trump signed a deal with Iran.

Oil prices fell to a more than three-month low after the US and Iran released the text of an interim agreement their presidents have signed to ‌end ​the war, extending the April ceasefire ⁠by another 60 days to allow the two sides to reach a final deal.

In premarket trading, the Dow Jones Industrial Average was up 0.6pc, the S&P 500 rose 0.9pc and the Nasdaq 100 gained 1.6pc.

However, the main US stock markers fell on Wednesday after traders increased bets on interest rate rises after the US Federal Reserve held its meeting on Wednesday.

Investors priced in rate rises after chair Kevin Warsh emphasised the need to tame inflation, while other ‌policymakers projected rising borrowing costs later this ⁠year.

Markets are currently pricing in a 86pc chance of a rate hike in September.

Intel’s shares rose 9.3pc in premarket trading after President Trump said Apple had agreed to work with the company to design and manufacture its chips in the US.

FTSE 100 slumps as traders bet on rate rises

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The FTSE 100 has fallen sharply as traders ramped up bets on interest rate rises this year.

The UK’s flagship stock slumped by 1pc ahead of the Bank of England’s next decision on interest rates. The FTSE 250 was down 0.6pc.

It comes after official figures showed Britain’s jobs market was stronger than feared, strengthening the case for tighter borrowing conditions.

A stronger jobs market would mean staff have more ability to demand higher wages, potentially fuelling inflation.

Traders are betting the Bank of England will raise interest rates from 3.75pc to 4pc by November. That pulls forward expectations from a raise by December.

Money markets have shifted expectations for rates higher after the Federal Reserve meeting on Wednesday, where policymakers indicated they expect borrowing costs to increase before the end of the year.

David Mericle of Goldman Sachs said the “meeting raises the risk of interest rate hikes later this year” but added he still expects rates to stay on hold.

Borrowing costs rise ahead of interest rate decision

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The cost of government borrowing edged higher ahead of the Bank of England’s next decision on interest rates.

The yield on 10-year gilts, a benchmark for what the Treasury pays to borrow money, rose from 4.75pc to 4.76pc.

It follow a jump in US borrowing costs overnight after the US Federal Reserve meeting was interpreted as favouring higher rates.

Ryan Djajasaputra, an analyst at Investec, said the statement by the Federal Open Market Committee (FOMC) “took a firmer tone on inflation” as policymakers committed to “deliver price stability”.

He said there was “a rising risk of a hike” in rates, with money markets indicating this will happen by October.

He said: “But ultimately much will depend on inflation data in the coming months and as such we remain of the view that the Fed will maintain a steady stance of policy through the course of this year.”

Private sector pay to ‘decelerate further’

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Private sector pay growth will slow down further, adding to the case for the Bank of England to cut rates by the end of the year, an economist has said.

Andrew Wishart of German private bank Berenberg said Britain’s jobs market would continue to loosen even though official figures show it is “not as weak as the previous data indicated”.

He said weakening pay growth had been “obscured” by gains in the public sector and bonuses. While pay including bonuses accelerated from 4.1pc to 4.4pc in the three months to April, private sector pay was down to a six-year low of 2.9pc.

He said: “With the full impact of higher energy prices and tighter financial conditions set to weigh on hiring over the summer, we expect the margin of slack in the labour market to widen from here, and cause private sector pay growth to decelerate further. 

“The resulting slowdown in services price inflation and a favourable base effect from energy prices a year on from the outbreak of the US-Iran war risk the Bank of England undershooting its 2pc target in 2027. 

“Therefore, we continue to expect the Bank of England to reprioritise the labour market over inflation by lowering bank rate by year end.”

Pound near two-month low

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The pound was trading near its lowest level in two months ahead of the Bank of England’s interest rate decision.

Sterling dropped by 1pc against the dollar on Wednesday to its lowest level since April after policymakers at the US Federal Reserve signalled they would be open to raising rates later this year.

The pound was little changed this morning at just under $1.33, despite official data suggesting the jobs market was stronger than expected, which would support the case for raising interest rates.

Mr Warsh, who took ​over as Fed chief last month, ‌made an immediate imprint in organising a unanimous consensus around a stripped-down policy statement that jettisoned any forward guidance on what actions the central bank might take in the near term.

New quarterly projections showed nine of 19 policymakers now anticipate a rate hike by the end of 2026.

Mohit Kumar, an economist at Jefferies, said: “It was Warsh’s first press conference and, in our view, he managed to stamp Fed’s credibility and that the Fed would deliver on its mandate of inflation and employment.”

Sterling was down 0.1pc versus the euro at €1.155.

Bank of England has ‘little reason’ to cut rates

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The stronger-than-expected employment figures give the Bank of England little reason to shift back towards cutting interest rates, economists said.

The Monetary Policy Committee is expected to keep rates on hold at 3.75pc for the fourth consecutive meeting on Thursday, with markets expecting a rate rise to 4pc by November.

Traders had slashed bets on rate rises on Wednesday after inflation came in lower than expected at 2.8pc.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “The labour market was easing only gradually, if at all, three months into the US-Iran war, giving the MPC little reason to pivot back to rate cutting even if oil prices eventually return to their previous levels.

“Job growth looks more stable after payrolls revisions and a small consensus-beating rise in April, the unemployment rate dipped back to 4.9pc.

“The MPC certainly won’t hike later today, while a July increase is off the table. But caution will have to be the watchword.”

Interest rates to ‘stay on hold over summer’

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The Bank of England will likely keep interest rates on hold over the summer while it assesses the impact of the Iran war, economists said.

Yael Selfin, chief economist at KPMG UK, said the latest labour market data “provides mixed signals for rate setters” after unemployment fell but private sector wages growth also weakened.

She said: “Today’s data provides the Bank of England with further tentative evidence that the recent energy shock is unlikely to lead to a renewed pick up in pay pressures.

“This is likely to strengthen the case for keeping interest rates on hold today and over the summer, especially given the recent decline in energy prices. 

“Unlike 2022, the labour market is not a key source of inflationary pressure this time round, which may leave some MPC members more reluctant to tighten policy further, with risks increasingly tilted to the downside. We expect the Bank of England to keep interest rates unchanged this week.”

James Smith of ING added: “On the face of it, the latest UK jobs report doesn’t look so bad. The unemployment rate ticked down to 4.9%. Payrolled employment rose after three consecutive monthly declines (it increased by a marginal 2000 workers). Average weekly earnings growth was higher than expected.

“But the details still look dovish for the Bank of England. And the report is another reminder that the case for higher rates is far from the clear cut.

“In short, today’s figures keep the Bank of England on track for a hold today and so long as the Iran deal holds, we think rate hikes can be avoided.”

UK stocks fall as traders bet on higher rates

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The FTSE 100 fell at the open after stronger-than-expected jobs figures increased bets on higher interest rates later this year.

The UK’s flagship stock index declined by 0.7pc to 10,437.56 while the mid-cap FTSE 250 dropped by 0.2pc to 23,307.80.

The downturn in UK stocks follows declines on Wall Street after the US Federal Reserve held interest rates at 3.5pc to 3.75pc but fuelled speculation that borrowing costs could rise.

In his first news conference as head of the US central bank, Kevin Warsh did not give a forecast for where the federal funds rate may end 2026. 

However, his colleagues’ new projections showed ‌officials expect a hike in borrowing costs later this year amid increasing inflation concerns. 

The Bank of England announces its next interest rate decision at noon.

Traders ramp up bets on higher interest rates

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Traders have increased bets on the Bank of England raising interest rates after official figures showed the jobs market holding up better than expected.

Money markets indicate policymakers will raise rates from 3.75pc to 4pc by November, a month earlier than wagers on Wednesday showing a rise by December.

Martin Beck, chief economist at WPI Strategy, said: “The direction of travel is still clear: employment is weakening, pay growth is slowing, and the case for a Bank of England rate rise this week looks even thinner.”

“A weaker jobs market and slowing pay growth are two reasons why we think the Bank of England will not add to the economy’s problems by raising interest rates today. 

“A prolonged period of inaction looks much more likely. 

“Whether the same can be said of Westminster is another matter. A change of prime minister and a more interventionist government risks making the labour market even less flexible, less responsive, and less able to absorb shocks.”

Construction workers suffer weak pay growth

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The situation is particularly tough in construction, where wages fell by 0.7pc on the year.

Pay growth slowed to 2.5pc in finance and business services.

Those working in retail, wholesale, restaurants and hotels - industries which typically have a larger share of workers on the minimum wage - were paid 3.5pc more than last year, on average. 

Although a larger increase than that seen in other industries, it still represents the smallest increase since 2021.

Private sector pay growth lowest since Covid

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Private sector pay growth fell below 3pc for the first time since 2020.

Wages for the average worker – excluding bonuses – in the three months to April were up by just 2.9pc compared to the same period of 2025.

By contrast the typical public sector worker’s regular pay increased by 5.1pc over the same period.

The Bank of England pays particularly close attention to private sector pay as a sign of inflationary pressures in the jobs market and the wider economy.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales said the slowdown should allow the Monetary Policy Committee to keep interest rates on hold, instead of raising borrowing costs to combat higher inflation. 

“Weak wage growth offers a silver lining for rate-setters by raising hopes that any inflationary spillover from the Iran war will be limited, especially as rising unemployment will help keep pay settlements heading downwards,” he said.

“This fresh fall in job vacancies suggests that demand for workers is dwindling uncomfortably quickly amid the growing financial squeeze on firms and as greater automation reshapes the jobs market.”

Vacancies hit five-year low

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Vacancies in the UK have slumped to their lowest level in over five years as firms continue to rein in their hiring, according to official figures.

The Office for National Statistics (ONS) said vacancies tumbled by 19,000 to 707,000 in the three months to May, which is the lowest since the three months to April 2021.

The ONS said the drop in vacancies was significant across lower‑paying sectors and smaller employers, while the largest fall in the quarter was in professional services.

Lowering paying sectors like retail and hospitality have complained that Rachel Reeves’s tax raids have hit their margins and made it harder for them to take on new staff.

ONS director of economic statistics Liz McKeown said: “Vacancies also continued to fall, further suggesting that firms are becoming more cautious about taking on new staff.

“The decline has been most persistent among lower-paying sectors and smaller employers, although the largest fall this quarter was in professional services.”

Iran war ‘causing uncertainty’ in jobs market

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The Work and Pensions Secretary said the Iran war was “causing uncertainty” in the jobs market despite official figures showing falling unemployment.

Pat McFadden said: “This month’s figures show that there are 400,000 more people in work than this time last year, but we know ongoing instability in the Middle East is causing uncertainty in our labour market.

“We have the right economic plan for growth and stability in a volatile world – and we are taking action to create opportunity and make sure that no one is left behind.

“We are pushing ahead with the biggest youth employment reforms in a generation to create almost a million opportunities for young people, boosting skills through our Youth Guarantee backed by a £2.5 billion investment and supporting 300,000 disabled people through our Connect to Work programme to futureproof our workforce to help more people into work.”

Unemployment falls to 4.9pc

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Unemployment fell unexpectedly, according to official data which complicates the picture for the Bank of England.

The rate of unemployment fell to 4.9pc in the three months to April, the Office for National Statistics said, down from 5pc in the three months to March.

The number of workers on payrolls rose to 30.3 million in May, up by 2,000 compared to April.

Signs of a strengthening jobs market would support the case for interest rates to remain higher to avoid the risk of an Iran war energy shock fuelling inflation.

ONS director of economic statistics Liz McKeown said: “The labour market remained broadly stable in the latest quarter, with further softening evident in some measures.

“Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years.

“However, overall employment was little changed, with some signs of workers moving into self-employment.

Good morning

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Thanks for joining me. Unemployment fell unexpectedly in a sign that Britain’s jobs market was holding up in the face of the fallout from the Iran war.

The rate of people out of work declined from 5pc to 4.9pc in the three months to April, according to the Office for National Statistics (ONS). Economists had expected it to remain at 5pc.

The number of people on payrolls rose by 2,000 in May compared to the previous month to 30.3 million, while wage growth held unexpectedly at 3.4pc between February and April, albeit at a six-year low.

Despite an overall improving picture, vacancies fell further to their lowest level since early 2021.

The figures complicate the picture for the Bank of England, which is expected to keep interest rates on hold for the fourth consecutive meeting.

Analysts think policymakers will keep rates at 3.75pc after inflation was lower than forecast last month, remaining unchanged at 2.8pc.

Meanwhile, oil prices have plunged this week from around $87 to $77 after a preliminary deal to end the Middle East war was announced by the US and Iran. 

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What happened overnight

Shares surged in Asia after the US and Iran signed their initial agreement ending the war.

Indexes in Japan and South Korea set fresh records despite a retreat on Wall Street on Wednesday followed by speculation the Federal Reserve may raise interest rates this year to curb inflation.

Leaders from the US and Iran signed the deal on a permanent end to hostilities. It starts a 60-day negotiating clock to reach a final deal on the future of Iran’s nuclear program, in the meantime it calls for Tehran to dilute its stockpile of highly enriched uranium.

The deal waives US-backed sanctions on the country, immediately allowing Iran to sell its oil freely in a major concession from Washington, according to details released by both countries.

The news came after US markets closed. In Tokyo, the Nikkei 225 kept on surging, gaining 1.9pc to 71,233.35. It topped 70,000 for the first time this week and is still gaining thanks to hopes for an end to the war and buying of high-tech shares due to the artificial intelligence boom.

South Korea likewise has been setting records, gaining 0.6pc to 8,917.31. Taiwan’s Taiex jumped 1pc.

The mood was mixed elsewhere. In Hong Kong, the Hang Seng lost 1.4pc to 23,968.66, while the Shanghai Composite index edged 0.1pc higher.

Australia’s S&P/ASX 200 slipped 0.4pc to 8,930.50.

The US Federal Reserve voted to hold interest rates at 3.75pc as policymakers grapple with the energy price shock from the Iran war.

Almost half of officials at the central bank said they expected at least one increase to interest rates by the end of the year. It marked a dramatic shift from March when 12 out of the 19 policymakers forecast that they would cut borrowing costs by the end of 2026.

Stocks on Wall Street ended the day lower as investors reacted to the changed outlook for interest rates. The S&P 500 declined 1.2pc, the tech-heavy Nasdaq shed 1.3pc and the Dow Jones Industrial Average slid 1pc.