UK inflation unexpectedly holds steady at 2.8% in May

British inflation unexpectedly held steady at 2.8% in May, defying economists' forecasts of a rise to 3.0%, ahead of the Bank of England's interest rate decision.

​British inflation unexpectedly held at 2.8% ‌for May, ​unchanged from the 13-month low reached in April, official figures showed on Wednesday, a day before the Bank of England will announce ‌its next interest rate decision. Sterling weakened slightly after the data. Economists polled by Reuters had forecast a rise to 3.0% for May, as the U.S.-Iran war keeps British inflation almost a percentage point ‌higher than the BoE had forecast in January.

Inflation has been above the BoE's 2% target ‌for most of the past five years, and in April the BoE said it was likely to rise above 3.5% by the end of the year, and potentially exceed 6% early next year under the most adverse of three ⁠scenarios. However, ​financial markets this week ⁠have drawn comfort from an apparent deal between the U.S. and Iran which promises to reopen the Strait of Hormuz, ⁠a major corridor for oil exports and is due to be signed in Switzerland on Friday.

Britain has been ​more affected than most Western countries by the conflict due to its reliance on ⁠imported natural gas. Economists polled by Reuters expect the BoE's Monetary Policy Committee to vote 7-2 to keep rates on hold ⁠at ​3.75%.

While Governor Andrew Bailey says the BoE has time to wait to assess the impact of the conflict, some policymakers worry businesses will use it to raise prices more broadly, ⁠or that it could dent households' confidence in the BoE inflation target. Services price inflation - which the ⁠BoE views as a ⁠guide to underlying price pressures - rose to 3.7% in May from 3.2% in April, in line with economists' forecasts.

Core inflation, which excludes food, energy, ‌alcohol and tobacco ‌prices, rose slightly less than expected to 2.6% ​from 2.5%.