UK inflation cooled to 2.8% in the latest reading, with lower household gas and electricity bills doing most of the heavy lifting. The government's energy bill support measures and a prior slide in wholesale energy prices both contributed to the decline. Separately, the UK quietly relaxed sanctions on Russian crude by issuing a trade licence allowing indefinite imports of jet fuel and diesel refined in third countries — a move that adds a geopolitical dimension to the energy picture.
Falling UK inflation raises the probability that the Bank of England cuts interest rates sooner, which is broadly supportive of UK equities and gilts (UK government bonds). Rate-sensitive sectors like real estate and utilities stand to benefit most. However, the sanctions relaxation and unresolved Iran tensions create an energy price wildcard that could quickly reverse this progress.
Bank of England next rate decision: May 8, 2025. UK April CPI inflation release: mid-May 2025. Any escalation in Iran-related geopolitical tensions or OPEC+ supply announcements would also move energy markets immediately.
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