FX markets

Daily Market View 20-05-2026

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1:21

UK inflation falls to 2025 low, but not as it seems

1 Minute Market Rundown

UK inflation falls to 2.8%, its lowest level since March 2025, with energy prices actually showing the biggest inflationary drop
Much of this is due to the base effect of comparing to higher figures from last year and also because Ofgem's price cap means most consumers have not felt any significant change in bills
Figures very likely to rise in very near future, with UK being an outlier so far given how inflation has actually fallen since war

GBP -

As strange as it sounds, UK inflation really has fallen and not only fallen, but fallen to its lowest since March 2025. While US inflation has rocketed to its highest since June of 2023 and Eurozone inflation tips over 3%, the UK has proven an outlier in its resilience against such a shock.

Ofgem makes sure that these things don't hit the system all at once nor too hard, moreover, May's weather has hitherto proved mild but no cold snap, further shielding home costs.

Screenshot 2026-05-20 090421

Above shows the actual breakdown, with the large yellow band on March representing the initial impact of higher Oil prices, before the base effect of comparing with high prices from March of 2025 leaves the data.

We would almost certainly have seen a decrease in energy prices overall if not for the Iran war. Practically, today's figures combined with yesterday's increase in unemployment suggests that the Bank of England may not need to hike rates as aggressively as first anticipated, which is bad news for the Pound.

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