High energy and food costs expected to push up inflationpublished at 06:18 BST
Marc Ashdown
Business correspondent
The pace of price rises might have surprisingly eased in April, but the impact of the Iran war is now starting to properly filter through to our food, energy and fuel costs.
The consensus among economists is for 3% inflation in the year to May, up from 2.8% the previous month – but some see prices possibly rising by as much as 3.2%, driven by the high cost of energy and food.
While the markets have been cheered by the outline agreement between the US and Iran to end the war – which means vital supplies can (in theory) soon start transiting the crucial Strait of Hormuz once more – the lag effect of war will weigh on the inflation picture for months to come.
An acceleration in costs in the services sector, coupled with higher air fares and car duty have been the main factors so far, but there may be more pain to come across the economy over the coming months.
Investors are hoping a relatively swift return to normality will amount to a bump rather than a spike in inflation, and much will ride on the Bank of England.
Policymakers were expected to raise interest rates up to three times this year due to the conflict. They meet again on Thursday, with the city now betting that rates will be held, at least for now.
