UK equities traded slightly lower on Wednesday after inflation data showed headline consumer prices remained unchanged in May, while stronger-than-expected services inflation reinforced expectations that the Bank of England will remain cautious when it announces its latest interest rate decision on Thursday.
The FTSE 100 fell 0.13%, while Germany’s DAX declined 0.39% and France’s CAC 40 eased 0.03%. Sterling was also marginally weaker against the U.S. dollar, slipping 0.10% to $1.3418.
Headline Inflation Holds at 2.8%
According to the Office for National Statistics, UK consumer price inflation remained at 2.8% in the year to May, matching April’s reading and coming in below expectations for an increase to 3%.
On a monthly basis, prices rose 0.2%, unchanged from the previous month.
Transport costs provided the largest upward contribution to inflation, helped by a 10.3% increase in air fares between April and May. Meanwhile, food and non-alcoholic beverages acted as the largest drag on the index, with annual food inflation slowing to 2.2%, its lowest level since December 2024.
Services Inflation Remains a Concern
While headline inflation was stable, the services component accelerated to 3.7% from 3.2%, suggesting underlying price pressures remain more persistent.
Analysts noted that the stronger services reading may limit expectations for near-term monetary easing and could help support sterling despite broader market uncertainty. Expectations for further Bank of England rate increases have already moderated in recent weeks, but policymakers are likely to remain cautious given the resilience of domestic inflation pressures.
Oil Extends Decline as Markets Price in Middle East Developments
Energy markets remained under pressure, with Brent crude falling below $79 a barrel for the first time in three months and U.S. benchmark WTI crude declining by more than 1%.
The move extended losses from the previous session as traders continued to factor in the partial reopening of the Strait of Hormuz ahead of the expected formal signing of a U.S.-Iran agreement later this week.
Although oil prices remain above pre-conflict levels of around $65 per barrel, the recent retreat has eased some concerns over energy-driven inflation and is increasingly being viewed as a supportive factor for central banks in both the UK and Europe.
Gold was little changed, with spot prices easing 0.05% to $4,329.16 per ounce.
Geopolitical Tensions Remain in Focus
Attention also remained on developments in the Middle East following comments from U.S. President Donald Trump at the G7 summit in France.
Trump criticised Israel’s military campaign in Lebanon, saying the country had been fighting Hezbollah “too long” and that “too many people are being killed.” He also said Prime Minister Benjamin Netanyahu needed to be “more responsible with respect to Lebanon.”
The United Nations peacekeeping mission in Lebanon reported a reduction in cross-border violence, although Lebanese state media said Israeli strikes killed at least four people on Tuesday.
Meanwhile, Iran warned of a “harsh response” if Israeli military operations continue, while Iranian Foreign Minister Abbas Araghchi described the Lebanon conflict as “linked and interdependent” with the broader regional agreement currently under discussion.
Trump said the text of the agreement would be released within days and submitted to Congress for review, while Vice President JD Vance said the delay reflected diplomatic sensitivities surrounding the process.
UK Corporate Highlights
Hays Continues Portfolio Reshaping
Hays (LSE:HAS) completed the disposal of its operations in the Czech Republic, Denmark, Hungary, Luxembourg, Romania and Sweden to Meraki Capital, generating approximately £4 million in net cash proceeds. The recruitment group is also reviewing strategic options for a further seven markets as part of its ongoing restructuring programme.
AO World Delivers Record Profit
AO World (LSE:AO.) reported a 16% increase in annual adjusted pre-tax profit and announced plans to return a further £20 million to shareholders through a special dividend and share buyback programme. The retailer also highlighted progress in expanding its customer ecosystem through the launch of AO Mobile.
PZ Cussons Upgrades Guidance Again
PZ Cussons (LSE:PZC) raised its profit expectations for the fourth time, saying adjusted operating profit for FY2026 is now expected to be at or slightly above the upper end of its £53 million to £57 million guidance range. The company cited strong sales momentum and stability in the Nigerian naira as key contributors to the improved outlook.
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