Closing summary
The high-speed rail network HS2 cannot be delivered on its current schedule and budget and will be delayed beyond 2033, the government has admitted, blaming mismanagement by the previous Conservative administration for schedule and cost overruns.
The transport secretary, Heidi Alexander, told MPs there was “no reasonable way to deliver” on the 2033 target for the first trains to run between London and Birmingham.
“Billions of pounds of taxpayers’ money has been wasted by constant scope changes, ineffective contracts and bad management,” Alexander told the Commons “It’s an appalling mess. But it’s one we will sort out.”
Here’s our timeline on HS2: 16 years of high hopes, bruising reality and burgeoning costs
Inflation in the UK eased slightly to 3.4% last month as a steep fall in air fares and petrol prices was offset by a jump in the cost of food.
May’s decline in the consumer prices index (CPI), down from the official figure of 3.5% for April, complicates the Bank of England’s interest rates decision on Thursday, although policymakers are still almost certain to hold interest rates at 4.25%.
Annual food inflation jumped to 4.4% in May from 3.4% in April, spurred by increases in the cost of sugar, jam and chocolate, which rose at the fastest pace since records began in 2016. Poor harvests affecting major cocoa-producers in Ghana and Ivory Coast sent chocolate prices soaring 17.7%.
Ruth Gregory, the deputy chief UK economist at Capital Economics, said rising food prices would be a concern to the Bank, especially when some staples such as meat were also pushed higher.
Our other main stories today:
Thank you for reading. We’ll be back tomorrow. Enjoy the sunshine! – JK
The figures come ahead of the Federal Reserve’s meeting and interest rate decision later today, with no change expected, but all eyes will be on Fed chair Jerome Powell when he holds his press conference, for any hints on the direction of interest rates.
On Wall Street, stocks have opened flat to slightly higher. The sixth day of the Israel-Iran conflict is keeping investors on edge.
In Europe, Germany’s Dax has fallen by 0.7% and France’s CAC is down 0.5% while the Italian borsa has lost 0.3% and the FTSE 100 index in London is 9 points ahead at 8,843, up 0.1%.
Oil prices are rising again, with Brent crude up 0.7%% or 55 cents to $76.99 a barrel while US crude is 0.9% higher at $75.5 a barrel, up 68 cents.
European gas prices have risen for a sixth day on fears of disruption to energy flows in the Middle East. European natural gas futures climbed to €40 per megawatt hour, the highest since early April, and are now up 1.7% at €39.9 per MWh.
Traders worry about potential disruptions to vessel traffic through the Strait of Hormuz, a key route for global energy trade.
Updated
US housing starts fall sharply to lowest since 2020
The number of houses started in the United States last month fell sharply to the lowest level since May 2020, when Covid disrupted construction.
US housing starts slumped by 9.8% month on month in May to 1.256m, 4.6% lower than in May last year.
There was also a sharp drop in permits for future construction.
Thomas Ryan, North America economist at Capital Economics, said:
With single-family starts essentially unchanged, the large drop was entirely driven by a huge 30% month-on-month fall in multi-family starts. We always emphasise the volatility of multi-family housing starts, however, and even with the sharp drop, they have only fallen to their lowest level since last November. Unseasonably wet weather in the East and some parts of the South seemed to play some role in the fall in starts. Housing starts fell in the Northeastern and Southern regions, while rising in the West, although they did drop back in the Midwest too.
Looking through these one-off factors, the outlook for homebuilding is still gloomy. Borrowing costs remain close to 7%, which is keeping buyers on the sidelines, while the evidence from homebuilder financial accounts shows building material tariffs already weighing on margins. Therefore, it was not much of a surprise that NAHB homebuilder confidence fell to 32 in June, from 34, marking its lowest level since December 2022. The report was weak across the board with all three of the major sub-indices posting losses in June. While we anticipate a bit of a bounce back in housing starts in June, new development will continue to weaken over the next year or so.
Total housing starts in the U.S. plunged 9.8% in May to an annual rate of 1.256 million, 4.6% lower than in May 2024. Single-family home starts were flat in May compared to April but down 7.3% compared to last year. Building permits were also down. #realestate #economy #housing pic.twitter.com/59AIaO55fj
— NAHB 🏠 (@NAHBhome) June 18, 2025
US housing starts continued to downshift in May, falling to 1.256 million units, the lowest since Apr 2020 and another sign that elevated mortgage rates & other factors are weighing on residential real estate activity: pic.twitter.com/lAY9DheYef
— James Picerno (@jpicerno) June 18, 2025
One of the biggest issues in America is our nation's desperate need for more housing -- especially for first-time buyers.
— Heather Long (@byHeatherLong) June 18, 2025
We need 2 million+ new homes built a year to try to fix.
The reality?
We're on track for ~1.4 million.
Blame tariffs
Blame high mortgage rates
Blame… pic.twitter.com/JfD11TBHHU
Here’s our full take on the delay to the HS2 rail project:
Shares in the UK’s two biggest pharmaceutical companies, AstraZeneca and GSK, are down by 1.1% and 1.4% respectively, after Donald Trump suggested the US could soon impose tariffs on the sector.
He told reporters aboard Air Force One on Tuesday that pharma tariffs are “coming very soon,” Reuters reported. The US president made the remarks as he returned from the G7 meeting in Canada.
Trump said:
We’re going to be doing pharmaceuticals very soon. That’s going to bring all the companies back into America. It’s going to bring most of them back into, at least partially back in.
The threat of pharma tariffs has been there for some time.
The project has suffered repeated delays and soaring costs despite being scaled back.
HS2 Ltd, the company building the high-speed rail line between London and Birmingham, is investigating claims that one of its labour suppliers on the project charged overinflated rates for staff.
Former prime minister Rishi Sunak announced the axing of HS2’s northern leg in 2023.
The government-commissioned review of HS2 by James Stewart has examined what went wrong and what it can teach ministers about how to run future infrastructure projects, while the new HS2 Ltd chief executive Mark Wild continues to examine how and when to construct the rest of the phase-one line from London to Birmingham.
The problems identified in the reports go beyond the escalating costs of tunnelling and environmental mitigations such as the £100m bat tunnel, which has been singled out for criticism by Keir Starmer.
Phase one of the HS2 scheme was projected in 2012 to cost £20bn, but more recent estimates now put that figure at as much as £57bn. Wild’s review, according to sources quoted by the rail expert Christian Wolmar could lead to the full budget being restated at current prices at more than £100bn.
HS2 project delayed beyond 2033, as minister attacks 'appalling mess'
Here’s more detail from our transport correspondent Gwyn Topham:
The HS2 high-speed rail network cannot be delivered on its current schedule and budget and will be delayed beyond 2033, the government has admitted, blaming mismanagement by the previous government for schedule and cost overruns.
Transport secretary Heidi Alexander told MPs that there was “no reasonable way to deliver” the 2033 target for the first trains to run from London to Birmingham.
She did not immediately confirm a new price for the project, which some suggest will now top £100bn at current prices, having officially been in a range of up to £57b n at 2019 prices, nor yet how long the delay would be.
But Alexander said she was “drawing a line in the sand” as she unveiled what she called a “litany of failure” over the last 15 years. The government is publishing the findings of a review commissioned last autumn by Labour into the troubled transport scheme, and the first assessment in a “reset” of construction under new HS2 Ltd chief executive Mark Wild.
Alexander said Wild had been told to build the line as safely and cheaply as possible, even if took longer.
She said:
We won’t reinstate cancelled sections we can’t afford. But we will do the hard and necessary wok to regain public traust and build this line.
She told MPs that last government mismanaged HS2 in numerous ways, including signing contracts against advice and repeatedly changing plans for redesigning London Euston station – now at a total cost of £250m in rejected design plans alone, she said. Alexander told the Commons:
Billions of pounds of taxpayers’ money has been wasted by constant scope changes, ineffective contracts and bad management. It’s an appalling mess. But it’s one we will sort out.
We need to set targets which we can confidently deliver, that the public can trust, and that will take time. But rest assured, where there are inefficiencies, we will root them out.
Updated
UK transport secretary calls HS2 an ‘appalling mess’ as she confirms delay
Heidi Alexander has confirmed a further delay to the HS2 project, calling it an “appalling mess” but vowed to “sort it out”.
Speaking in the House of Commons, the UK transport secretary said:
We will learn the lessons of the past 15 years, and restore our reputation of delivering world-class infrastructure projects.
Billions of pounds of taxpayer’s money has been wasted by constant scope changes, ineffective contracts and bad management.
It is an appalling mess, but it is one we will sort out.
She added that there are also allegations of fraud.
Alexander said the government accepted all the recommendations of the HS2 review, which was commissioned last October, adding that ministers are already delivering on them, in five key areas:
A lack of oversight and scrutiny
Spiralling costs
A deficit in capability and skills
Addressing plans for Euston station in London
Transforming infrastructure delivery across government
Eurozone inflation confirmed at 1.9% in May, below ECB target
Eurozone inflation in May fell below the European Central Bank’s 2% target for the first time in seven months.
Eurostat, the EU’s statistical office, confirmed today that the annual change in the consumer prices index slowed to 1.9% in May, from 2.2% in April, in line with its earlier estimate. A year earlier, the rate stood at 2.6%.
Annual inflation in the European Union came in at 2.2% in May, down from 2.4% in April and 2.7% a year earlier.
The lowest annual rates were registered in Cyprus (0.4%), France (0.6%) and Ireland (1.4%). The highest rates were recorded in Romania (5.4%), Estonia (4.6%) and Hungary (4.5%). Compared with April, annual inflation fell in 14 member states, remained stable in one and rose in 12.
The highest contributions – pushing inflation in the eurozone up in May – came from services; food, alcohol and tobacco and non-energy industrial goods, while energy costs dragged inflation lower.
Using May Euro Area CPI released today, the average inflation since the launch of the euro stands at 2.1%.
— Stephane Deo (@StephaneDeo) June 18, 2025
The ECB’s target is 2%.
Not bad, after all… pic.twitter.com/eiB9JF4L7g
Updated
Fifa again under scrutiny for World Cup’s increased carbon footprint
As next summer’s World Cup approaches, excitement is building for the biggest global soccer tournament ever held, but so too are concerns over the viability and environmental sustainability of the vastly expanded competition.
Held across 16 cities in the United States, Canada and Mexico, the 2026 World Cup will see the tournament expand from 32 nations to 48 competing for soccer’s most coveted prize. It will be a tournament of unprecedented scale both in terms of the number of teams, and the vast geographical expanse it will cover.
Both of these factors bring significant environmental concerns, however – particularly regarding the tournament’s carbon footprint and the effectiveness of Fifa’s proposed mitigation strategies.
Fifa first introduced its Climate Strategy report back in 2021 in response to growing environmental concerns, launching its initiative at the UN Climate Change Conference (Cop26) that year. In the plan, Fifa pledged to reduce its carbon emissions by 50% by 2030 and achieve net zero emissions by 2040.
The strategy included measures such as promoting sustainable infrastructure, enhancing energy efficiency and encouraging the use of renewable energy. It also included a fair amount of carbon offsetting – a process by which entities buy “credits” that go toward environmental protection, to theoretically make up for emissions produced.
Overseas-trained dentists working in McDonald’s as millions lack NHS care
Overseas-trained dentists are working in McDonald’s and other takeaways in the UK even though millions of patients are finding it impossible to get NHS dental care – with “dental deserts” emerging – areas without access to NHS dentists.
The disclosure comes in a new report being sent to MPs on Wednesday, which urges ministers to slash bureaucracy stopping dentists from abroad plugging the huge gaps in NHS dental care.
The main obstacle they face is securing a place to take the exams needed to work in the UK, a process so difficult some liken it to obtaining a ticket to see Taylor Swift.
As a result fully qualified dentists from countries such as India, Egypt and Albania are spending months or even years at a time working in fast food cafes, according to the Association of Dental Groups (ADG).
The ADG, which represents major dental providers, demanded an urgent overhaul of the two-part overseas registration examination (ORE) to avoid “an unacceptable waste” of foreign dentists’ skills. Dentists who qualified overseas need to pass both parts of the ORE in order to gain entry to the General Dental Council’s register, which then allows them to work in the UK.
Airbus to pay out more in dividends
Airbus said it aims to pay out more in dividends, and confirmed guidance for 2025, ahead of a business update.
The European aviation company, which makes single-aisle jets for passenger airlines, has raised the upper end of its dividend payout target to 50%, from 30% to 40% previously.
The world’s biggest planemaker reiterated its commitment to profitable growth and reaffirmed its production targets. Airbus shares are trading 2.6% higher, after jumping nearly 4% earlier.
The Airbus chief executive, Guillaume Faury, and its chief financial officer, Thomas Toepfer, are giving a business update today – you can watch here.
It comes as the global aerospace industry gathers at the Paris airshow, where manufacturers are showing off their latest offerings, amid escalating fighting in the Middle East, sweeping US trade tariffs and supply chain strains.
The company faces supply chain problems that have left almost 40 aircraft stranded without engines at its factories, as shortages of cabin equipment and at power plants disrupt deliveries.
However, since early 2025, Airbus has experienced 40% less disruptions by delayed components at its production facilities, the group’s head of operations for the commercial aircraft business, Florent Massou, said during the business update, Reuters reported.
Updated
Amazon boss tells staff AI means their jobs are at risk in coming years
The boss of Amazon has told white collar staff at the e-commerce company their jobs could be taken by artificial intelligence in the next few years.
Andrew Jassy told employees that AI agents – tools that carry out tasks autonomously – and generative AI systems such as chatbots would require fewer employees in certain areas. He said in a memo to staff:
As we roll out more generative AI and agents, it should change the way our work is done. We will need fewer people doing some of the jobs that are being done today, and more people doing other types of jobs.
It’s hard to know exactly where this nets out over time, but in the next few years, we expect that this will reduce our total corporate workforce.
UK house price growth halves after tax break ends; rent rises cool
Annual house price growth in the UK has halved, after a tax break expired, according to official figures.
The average UK house price increased by 3.5% in the 12 months to April, halving from 7% growth recorded in the 12 months to March, according to figures from the Office for National Statistics. The average home cost £265,000.
Buyers rushed to complete their purchases before a stamp duty holiday expired on 31 March, driving up prices that month.
The rental market continues to cool, with the fifth month of slowing annual growth across the UK. Average UK monthly private rents increased by 7%, to £1,339, in the 12 months to May; down from 7.4% in the 12 months to April.
The north east once gain showed the highest annual increase and the south west the lowest growth. London was the only English region where inflation picked up, said Aimee North, head of housing market indices at the ONS. Private rents in Scotland grew at their lowest annual pace in three years.
Average UK house prices increased by 3.5%, to £265,000 in the year to April 2025, down from 7.0% in the 12 months to March 2025.
— Office for National Statistics (ONS) (@ONS) June 18, 2025
Average UK private rents increased by 7.0% in the year to May 2025, this is down from 7.4% in April 2025.
➡️ https://t.co/41uQW9sSC8 pic.twitter.com/abCD6dgRPG
Updated
Minister says UK turned into international 'laughing stock' as HS2 delayed further
HS2 is to be delayed yet again by at least a further two years, the UK government will announce today, as the transport secretary says the Conservatives wasted billions on the project through mismanagement.
Heidi Alexander will tell MPs there is “no reasonable way to deliver” the 2033 target for the high-speed rail line from London to Birmingham.
She will announce the findings of two reviews into the troubled transport scheme, even as ministers brace to swallow another increase in the projected price tag to a reported £100bn.
Alexander will tell MPs the last government overspent on HS2 in numerous ways, including signing contracts even when advised not to and drawing up expensive plans for redesigning Euston station in London before scrapping them.
The UK has been turned into an international “laughing stock” over the failure to control the HS2 rail project, a minister has admitted.
Housing and planning minister Matthew Pennycook said there were “serious problems” with HS2 “in terms of accountability, project overruns, costs”. He told LBC radio that the way HS2 and other infrastructure projects have been handled “reflect very poorly on us” as a country.
He said the planning and infrastructure bill includes a number of changes that will “speed up the consenting process for nationally significant infrastructure” and this week’s infrastructure strategy “seeks to reverse the frankly erratic decisions and underinvestment we’ve seen over the past 14 years”.
So we do need to learn the lessons, take a different approach, ensure that we’re getting infrastructure investment going in, certainty and stability about investment and getting to grip with project timelines and costs.
Because I think, frankly, when it comes to HS2, in some ways, we’re a bit of a laughing stock around the world in terms of how we handle infrastructure. As a government, we’re absolutely determined to turn that around.
Staying with the food theme… Ole & Steen, the Danish bakery and coffee chain which runs 26 cafes across London, has reported a jump in UK sales and profits, after launching new products and a new web-based ordering portal to better serve offices.
Last year, the company made underlying profits (measured by earnings before interest, tax, depreciation and amortisation) of £4.9m, up from £3.9m in 2023. Revenues rose by 5% to £36.7m. Ole & Steen enjoyed 17% like-for-like sales growth in the fourth quarter.
UK managing director Graham Hollinshead said:
This performance was driven by a stellar finish to the year… firmly re-establishing our position as London’s favourite Danish bakery and coffee house. This positive momentum has continued into 2025.
Ole & Steen has invested in its London production site in Leyton and expanded to three major delivery platforms. In 2024, it launches the Christmas turkey toast, cardamom bum and added a festive twist to its flagship product, the cinnamon social.
The company was formed when the founders Ole and Steen joined forces. Third-generation baker Ole Kristoffersen opened a bakery with his girlfriend Jane in 1991 in Christianshavn, Copenhagen while Steen Skallebaek opened its first bakery in Jutland in west Denmark in 1992.
Chocolate prices in Britain rising at fastest rate on record
Chocolate prices in Britain are rising at the fastest rate on record, the latest official figures suggest.
Chocolate prices jumped by 17.7% in the year to May, the biggest increase since records began in 2016, according to the Office for National Statistics.
Chocolate prices have risen following bad harvests in cocoa-producing regions, caused by bad weather, for example in Ghana and Ivory Coast.
Seven categories saw inflation in double digits, the Food and Drink Federation noted: butter (18.2%), chocolate (17.7%), beef and veal (17.0%), coffee (13.9%), lamb and goat (11.2%), edible offal (10.1%), and cocoa and powdered chocolate (10.1%).
Prices fell the fastest for: olive oil (-6.0%), pasta products and couscous (-6.0%), and rice (-2.9%).
Shares in Ocado jumped by more than 4% in early trading, after the UK online grocer and technology company clinched a deal with Catalonian supermarket group Bon Preu to build a robotic warehouse near Barcelona.
Ocado said it was expanding its partnership with Bon Preu, which was its first international partner in 2017.
Ocado sells groceries online and has a joint venture with Marks & Spencer, but investors are more interested in its technology. It has developed robots that zip up and down warehouse aisles to pick groceries, and builds automated warehouses for other retailers around the world.
Following the early share price gains, Ocado’s stock has now dipped slightly, by 0.16% to 244.1p a share.
AO World profits jump after musicMagpie acquisition
In other news, the UK online electrical goods seller AO World has reported a jump in full-year profits on the back of its musicMagpie acquisition.
It posted a 32% rise in like-for-like adjusted pre-tax profit to £45m for its latest financial year, ahead of what investors had been expecting. It was the best year ever for profits by that metric, the retailer said.
The company, which sells a range of electrical goods from washing machines to laptops, reported a 7% rise in like-for-like revenue to £1.1bn, while sales in its business-to-consumer division gew by 12% to £832m in the year ended in March.
Its growth was driven by the expansion of its membership offering, as well as a wider product range and its recent acquisition of the second-hand electronics retailer musicMagpie, the company said.
However on a statutory basis, which takes into account fees related to the musicMagpie acquisition as well as an impairment charge related to its mobile business, dropped by 40% to £21m.
Management struck an optimistic tone, reiterating a target of adjusted pre-tax profit of £40m to £50m for its current financial year, “despite the wider macroeconomic challenges, particularly employment cost increases”.
AO World, which employed about 3,000 people last year, noted there had been a rise in employment costs over the year which it said “will only further increase” this year due to government changes to the minimum wage and employers’ National Insurance contributions. It will “increasingly look to mitigate these costs through automation, outsourcing and offshoring”.
European gas prices rise for sixth day, with Hormuz traffic in focus
European gas prices are rising for a sixth day, as traders worry that an escalating conflict between Israel and Iran could disrupt global energy flows.
European natural gas futures jumped above €39 per megawatt hour, the highest in more than ten weeks. The Dutch benchmark rose by 1.5% to 39.805 MWh.
Tensions heightened after Donald Trump urged the evacuation of Tehran and dismissed peace talks. The US president wrote on social media that the United States knows the location of Iran’s leader Ayatollah Khamenei, adding that the US would not kill him “for now” but called for Iran’s “unconditional surrender”.
While Europe currently has enough gas supplies, its reliance on global liquefied natural gas makes it vulnerable to geopolitical shocks.
A big concern is the Strait of Hormuz, through which a fifth of global LNG and oil shipments pass. If Iran blocks the waterway (the only sea passage from the Persian Gulf to the open ocean), Qatari exports, which account for nearly 4% of Europe’s gas, could be affected. So far, Quatar says navigation remains normal.
Hotter than usual temperatures across Europe are boosting demand for air conditioning, ramping up energy demand.
The pound has gained nearly 0.3% against the dollar, trading at $1.3461, while the euro is up by more than 0.3% against the greenback, at $1.1515.
On the stock markets, the FTSE 100 index is 20 points ahead at 8,854, up 0.2%. Germany’s Dax is slightly in the red at 23,419 and France’s CAC is up by a smidgen, while Italy’s FTSE MiB index has added 0.25%.
Dollar wobbles amid Israel-Iran fighting as investors await Fed decision
In financial markets, the dollar is falling against most major currencies, as the latest developments in the Israel-Iran conflict left investors nervous – ahead of the US Federal Reserve’s interest rate decision later today.
Israel has pounded Iran over the past six days, with strikes against nuclear and military sites and the assassination of top nuclear scientists and military leaders, and is pushing for regime change in the Islamic Republic. Israel’s defence forces said they launched a fresh wave of strikes on Tehran in the early hours of Wednesday morning, warning residents in parts of the city to urgently evacuate.
The US military is deploying more fighter jets to the Middle East, Reuters reported, sparking speculation of US intervention that investors fear would widen the conflict.
The dollar fell by nearly 0.3% against a basket of major currencies. It has lost more than 8% so far this year as confidence in the US has waned due to Donald Trump’s sweeping trade tariffs and other policies.
Currency strategist Rodrigo Catril at National Australia Bank told Reuters:
The dollar is still a safe haven because of its depth and liquidity, so yes the structural forces are diluting the dollar safe-haven activities, but they’re not eroding them completely.
But in a scenario of big risk aversion, the dollar will still gain support but maybe not to the same extent it has managed in the past.
The latest UK inflation data showed that the annual rate for goods inflation rose from 1.7% to 2% in May, while the services annual rate slowed from 5.4% to 4.7%.
The latter is closely watched by the Bank of England, as the UK economy is dominated by the service industries.
Sanjay Raja, chief UK economist at Deutsche Bank,
The focus now will turn to geopolitical events and the rise in energy prices. This will undoubtedly complicate the monetary policy committee’s task. Higher energy prices will mean higher inflation expectations. The trump card? The labour market data.
The ongoing labour market loosening should give the MPC a little more confidence in its ‘gradual and careful’ approach to dialling down restrictive policy. And crucially, today’s data should help convince MPC members on the fence that price pressures are tracking as expected and underlying disinflation remains on track.
But don’t expect a dovish pivot just yet – more data and more accumulation of evidence that the economy is returning to a sustainable equilibrium will be needed to push the MPC into a more dovish direction.
Inflation pressures remain sticky in the UK, according to Rob Wood, chief UK economist at Pantheon Macroeconomics.
Looking ahead, we continue to expect CPI inflation to average 3.4% for the rest of the year as strong wage growth, minimum wage hikes and tax increases pass through to retail prices. We think headline inflation will struggle to dip below 3% before April 2026. By that point, inflation will have been above target almost continuously for five years, risking further deanchoring of inflation expectations and persistent wage pressure.
Granted, US president Trump’s trade war could lead to some diversion of Chinese exports previously bound to the US, which could cut UK inflation. But war in the Middle-East has boosted oil and natural gas prices, adding 10bp to our forecast inflation peak and risks probably lie to the upside. We think the MPC will have to proceed cautiously.
We expect just one more rate cut this year in November, though after last week’s dovish labour market and growth data August looks like a better bet for now. Either way, we think one more rate cut this year is the right call because of sticky inflation, and we expect rebounds in GDP and job growth to give a more hawkish tint to the data flow heading into the monetary policy committee’s August policy meeting. For this week’s MPC meeting a hold is all but guaranteed and we expect little change in guidance.
Dr Liliana Danila, lead economist at the Food and Drink Federation, explains the rise in food costs, with further increases to come.
Food and drink inflation shot up in May 2025, reaching 4.4% compared to 3.4% in April. These figures are being driven by rising energy and ingredients costs. Food manufacturing is an energy intensive sector, and wholesale gas prices are 7.8% higher compared to last May, as UK businesses face significantly higher industrial energy costs compared to other nations.
Meanwhile, the price of ingredients has also surged. For example, in the last two years, the price of cocoa has tripled, while wholesale butter prices are also 55% higher than last year. Recent and upcoming regulations are also bringing additional costs to manufacturers.
With these price increases being coupled with a drop in consumer confidence and a fall in retail sales, food manufacturers have been absorbing rising costs for several years. Recent geopolitical uncertainty is also likely to result in higher pressure on energy and imports, and so unstable manufacturing costs are likely to persist. As a result, we now expect to reach our forecast of 4.8% food and drink inflation for December sooner than anticipated.
Rise in oil prices to lead to higher prices at the pumps
While UK petrol and diesel prices fell last month, this could be short-lived. A sharp rise in crude prices triggered by the Israel-Iran conflict is likely to lead to higher prices at the pumps.
Oil prices are little changed at the moment, after rising sharply in recent days following Israel’s surprise attack on Iran on Friday, which prompted Iran to retaliate with its own missile strikes.
Brent crude, the global benchmark, is trading above $76 a barrel, at $76.38. It’s around 10% higher than before Israel’s attacks on Iran, at levels not seen since February.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said:
Already it appears some ships are avoiding the region. There’s not an exodus yet, but companies are operating with extreme caution, and a closure of the strait would disrupt global supply chains.
Just as sticky inflation is already a concern the surge in energy prices and a potential ramp up in shipping costs is set to cause more trouble. It’s certainly an extra headache for policymakers deciding on interest rate cuts this week.
Consumer Price Inflation hasn’t budged in the UK, coming in at 3.4% for May. This was expected and although this is a slightly better scenario than another ramp up in price increases, it’s unlikely to persuade more decision makers to vote for a rate cut tomorrow.
Higher crude prices are set to lead to more expensive prices at the pumps, and potentially increased transport bills. Natural gas prices have also risen amid the geopolitical instability, given the potential disruption of LNG shipments from Qatar, which is the third largest global exporter.
A long, drawn-out conflict could keep prices elevated, which would have a knock-on effect on electricity prices, increasing energy bills for consumers and companies later this year, just as they had hoped lower costs were here to stay.
Nevertheless at least two more interest rate cuts are expected from the Bank of England this year, with the chances of a reduction in August bulking up a little.
Updated
Reeves: 'More to do' to bring down inflation
Rachel Reeves said there was “more to do” to bring down inflation and help with the cost of living.
The UK chancellor said the government’s “number one mission is to put more money in the pockets of working people”.
We took the necessary choices to stabilise the public finances and get inflation under control after the double-digit increases we saw under the previous government, but we know there’s more to do.
Last week we extended the £3 bus fare cap, funded free school meals for over half a million more children and are delivering our plans for free breakfast clubs for every child in the country.
This government is investing in Britain’s renewal to make working people better off.
Meanwhile, the shadow chancellor Sir Mel Stride, from the opposition Conservative party, said:
This morning’s news that inflation remains well above the 2% target is deeply worrying for families.
Labour’s choices to tax jobs and ramp up borrowing are killing growth and stoking inflation - making everyday essentials more expensive.
Updated
Markets still expect no rate change from Bank of England tomorrow
Here’s our full take. The inflation figures come a day before the Bank of England announces its latest interest rate decision, with markets expecting no change at noon tomorrow.
Traders have pencilled in a 10% chance of a cut. A reduction in August seems more likely. Markets are still expecting two more quarter point cuts to the base rate by the end of the year, from its current 4.25%.
Updated
Food and non-alcoholic drink prices have picked up, though – rising by 4.4% in the 12 months to May versus 3.4% in April. This was the highest rate of food inflation since February last year, when it was 5%.
The price of chocolate, confectionery and ice-cream rose between April and May but fell between the same months a year ago. Meat prices rose by more this year than this time last year.
Prices of furniture and household goods rose by 0.8% in May, the highest annual rate since December 2023, but well below the peaks seen in 2022.
Prices of fridge freezers and vacuum cleaners rose in May but fell a year ago, reflecting different timing of retailers’ sales. Prices of bedroom furniture rose by more this May than a year ago.
Updated
Transport costs eased last month, pushing overall inflation lower.
The statistics office said transport prices rose by 0.7% in the 12 months to May, down from 3.3% in the 12 months to April, reflecting drops in air fares (which jumped in April) and petrol prices, together with the correction of an error in vehicle excise duty prices.
The latter was overstated in April and the series corrected from May. As is standard practice, the April figure has not been revised, the ONS said.
The average price of petrol fell by 2.1 pence a litre between April and May to 132.4p a litre, down from 148.8p per litre in May 2024. Diesel prices fell by 2.6p a litre to 139.1p a litre, down from 156.3p a litre in May last year.
Commenting on today’s inflation figures for May 2025, ONS Acting Chief Economist Richard Heys said: (quote 1 of 2) pic.twitter.com/hxuG9QCzYu
— Office for National Statistics (ONS) (@ONS) June 18, 2025
Richard Heys went on to say: (quote 2 of 2) pic.twitter.com/TgMXGX8jfv
— Office for National Statistics (ONS) (@ONS) June 18, 2025
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UK inflation slows to 3.4% in May as transport costs ease
Inflation in the UK has slowed slightly, as expected.
The consumer prices index rose by 3.4% year on year in May, down from 3.5% in April, according to the Office for National Statistics. This was bang in line with City economists’ forecasts. The central bank’s target is 2%.
The core rate, which excludes energy and food, fell to 3.5% from 3.8%, also as expected.
The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to May 2025, compared with 3.5% in the 12 months to April.
— Office for National Statistics (ONS) (@ONS) June 18, 2025
Read the full article ➡️ https://t.co/m9vpk5oFn3 pic.twitter.com/DtOjwdagzv
The largest downward contribution came from transport; the largest, partially offsetting, upward contributions came from food, and furniture and household goods, the ONS said.
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Japan’s exports have fallen for the first time in eight months along with imports, reflecting the impact of sweeping US tariffs.
The country’s exports dropped by 1.7% year on year to a four-month low in May, following a 2% gain in April, and marking the first decline since September. Imports slumped by 7.7% to a three-month low, the biggest drop since the start of last year.
Japan’s Nikkei shrugged off the news to rise by 0.8% while several other Asian stock markets were in the red – Hong Kong’s Hang Seng fell by 1.2% and the Singapore exchange lost 0.4%. The South Korean Kospi rose by 0.5% and Chinese indices rose slightly.
Introduction: UK inflation expected to have dipped in May in latest official figures
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Inflation in the UK is forecast to have dipped to an annual rate of 3.4% in May from 3.5% in April.
The official figures are released at 7am. This month is trickier than usual: the Office for National Statistics has admitted that April’s inflation data was wrong because of faulty data from the Department of Transport. This means statisticians overestimated the impact from a rise in vehicle excise duty, and the headline inflation rate should have been 3.4%.
However it would be a surprise if the ONS changed the April figure; it said that it wouldn’t revise it, “in line with existing policy” – but with May’s data calculated from the corrected base.
The core rate in the consumer prices index, which strips out volatile energy and food costs, is expected to have slowed to an annual rate of 3.5% from 3.8%, according to forecasts compiled by Reuters.
The main inflation rate rose sharply to 3.5% in April from 2.6% in March, mainly due to sharp increases in water charges, gas and electricity tariffs. There was also a 27.5% monthly spike in air fares, resulting in a yearly increase of 16.2%, partly due to the time of Easter holidays. This effect will have unwound in May.
Philip Shaw, chief economist at Investec, who is predicting a May inflation rate of 3.3%, said:
Given that underlying pressure on air fares currently appears to be downwards, our forecast is that airfares will have subtracted some 0.2% from CPI inflation. Lower petrol prices should also have helped to push inflation down. In addition, we are pencilling in some modest downward effects from rental prices which have been on a moderating trend since February.
On the upside, it seems likely that there will be a rebound in annual increases in areas such as clothing and furniture, both of which were subdued in April. We also expect some rise in food price inflation, against the grain of food price disinflation elsewhere in Europe, partly as retailers continued to pass through some higher costs from increases in employer national insurance contributions and a rise in the National Living Wage.
What is the outlook for inflation, and what does it mean for interest rates? Shaw said:
On our profile, inflation remains broadly flat over the next few months and there is a good chance that April’s reading represents this year’s peak. By contrast the monetary policy committee [MPC] expects a high of 3.7% in September. Were our forecast to play out, we suspect the MPC would become relatively relaxed over inflation in the summer, enabling it to bring rates down again in August.
Donald Trump is threatening to keep 25% tariffs on some or all of its steel imports from the UK unless it gives specific guarantees over the Indian-owned steelmaking plant at Port Talbot in south Wales, sources have told the Guardian.
An agreement to reduce tariffs on UK car exports to the US and scrap them for the aerospace sector was signed off by the US president and Keir Starmer on Monday, on the sidelines of the G7 summit in Canada.
Later today, the US Federal Reserve’s open market committee holds its policy meeting and announces its decision at 7pm BST. America’s central bank is expected to keep interest rates unchanged at 4.5%. Fed chair Jerome Powell will explain the thinking behind the decision at a press conference half an hour later.
Markets have been jittery, with oil prices rising in recent days amid the conflict between Israel and Iran, following Israel’s attack on nuclear and military sites in Iran last Friday.
The Agenda
G-7 leaders meeting day 2
9.30am BST: UK house prices and rents
10am BST: Eurozone inflation (final) for May
1.30pm BST: US Housing starts for May and initial jobless claims
7pm BST: US Federal Reserve interest rate decision (no change expected)
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