Softer CPI, Flat Tape, Big Central Bank Risk
London was hugging the flat line on Wednesday as investors digested a softer-than-feared UK inflation print and held fire ahead of a heavy policy and geopolitical calendar. The FTSE 100 was up just 5.95 points, or 0.06%, at 10,500.16 late in the morning, with traders waiting for the Federal Reserve, Thursday’s Bank of England decision and the formal signing of the U.S.-Iran peace agreement. The inflation data gave the market some relief, but not enough to spark a clean rally. UK CPI rose 2.8% year-on-year in May, unchanged from April and below expectations for 3.0%. On the month, prices increased 0.2%, a sharp slowdown from April’s 0.7% rise. Core inflation nudged up to 2.6% from 2.5%, but that was still slightly below forecasts for 2.7%. For the Bank of England, this is helpful but not decisive. The headline miss reduces the urgency for a hawkish shock, especially after the recent slide in oil prices linked to U.S.-Iran peace hopes. But core inflation moving higher, even modestly, keeps the hawks in the game. The MPC is still facing the same trade-off: inflation is above target, but growth and labour-market momentum are softening. The Bank is widely expected to hold Bank Rate at 3.75%, its lowest level since June 2023, after previous 25bp cuts in August and November 2025. The decision itself is unlikely to move markets. The vote split will. A 7–2 hold, with Pill and Greene dissenting for a hike, remains the base case. A 6–3 hold would look more hawkish and could push gilt yields higher. Anything suggesting former doves are moving toward tightening would be the real bearish rates surprise.
Under the hood, the equity market was mixed. Weir Group led the FTSE 100, up nearly 3%, while Barclays rose 2.3% and Spirax gained 1.7%. Housebuilders and financials also found support, with Berkeley, Standard Chartered, Barratt Redrow and Persimmon all higher. 3i Group, Auto Trader, Rolls-Royce, Sage, Melrose and Antofagasta gained between 1% and 1.6%. The bid in housebuilders made sense after the inflation print. Softer headline CPI lowers the probability of an imminent hawkish policy surprise, even if the BoE remains cautious. Rate-sensitive housing names do not need a dovish pivot to rally; they just need the worst inflation fears to fade. Banks were also firm. Barclays and Standard Chartered gained as investors balanced softer inflation against the view that UK rates will stay restrictive for longer. The sector continues to benefit from a rates backdrop that supports margins, provided growth does not deteriorate too quickly.
On the downside, defensives and consumer names were heavy. British American Tobacco fell 2.1%, while Entain, Rio Tinto (RIO), Halma, Airtel Africa, Centrica, BT (BT.A) and Associated British Foods lost between 1.5% and 2%. Marks & Spencer, Sainsbury's, LondonMetric Property, Compass, Imperial Brands, Mondi, Convatec, National Grid and Tesco also traded lower. The producer-price data complicated the picture. Factory-gate inflation eased slightly to 4.0% from 4.1%, but input-price inflation accelerated to 8.7%, the highest since February 2023, from 7.9% in April. Monthly input-price growth slowed sharply to 0.2% from 2.6%, but the annual rate is still uncomfortable. That is a warning that pipeline cost pressure has not disappeared, even with oil rolling over. Globally, investors were also reluctant to overcommit. The first Federal Reserve decision under the new Fed Chair lands later, and markets want to see whether the Fed validates recent easing in bond yields or pushes back against looser financial conditions. At the same time, the U.S.-Iran peace agreement still needs to be signed and implemented. The oil risk premium has deflated, but execution risk remains.
Finish Line: The FTSE 100 went nowhere fast. Softer-than-expected headline CPI helped housebuilders and banks, but sticky core inflation and rising annual input costs kept the BoE hawks alive. With the Fed, the BoE and the Iran-U.S. peace signing all in the frame, investors chose not to chase. The next market move is less about today’s inflation miss and more about tomorrow’s vote split.
TECHNICAL & TRADE VIEW – FTSE100
Daily VWAP Bullish
Weekly VWAP Bullish
Above 10350 Target 11000
Below 10100 Target 9469
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