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Daily Economic Update
22.06.2025Oil: Prices likely to spike following US bombing of Iranian nuclear facilities. Earlier today, President Trump announced that the US conducted military strikes that have “obliterated” Iran’s Fordow, Natanz, and Isfahan nuclear facilities. The US participating directly in the Israel-Iran war marks a significant escalation in the conflict with an Iranian retaliation on US assets in the region or some disruption of shipping through the Strait of Hormuz now more likely. The damage on Iranian facilities is not yet clear as of time of writing, as is any impact on shipping through the Strait. Still, oil prices will likely open higher tomorrow and Brent could push well past the $80/bbl level, with higher volatility and the intense rise in uncertainty likely to be a theme in tomorrow’s price action. The Iranian response will be a key event to monitor today: in the event of signs that Iran could choose to accelerate a negotiated peace deal that de-escalates the conflict, any knee-jerk reaction from the oil markets would be more limited.
UK: BoE keeps policy rates on hold, sees a weakening economy and slowing pay growth ahead. The Bank of England (BoE) as expected maintained the bank rate at 4.25% in a slightly more dovish than market expected vote split, with three MPC members opting for a 25-bps cut and the remaining six for a hold. The MPC statement cited underlying GDP growth remaining weak with a loosening labor market and slowing wage growth ahead but a somewhat lower than previously expected adverse impact from the global trade shock. However, the bank continues to expect current inflationary pressures to be largely sustained over the coming months, with inflation briefly peaking to 3.7% by September before starting to ease towards the end of the year. Therefore, the statement reiterated the MPC’s previous stance of “a gradual and careful approach” to the further withdrawal of monetary policy restraint. The bank also remained concerned about the latest geo-political tensions in the Middle East and their impact on oil prices and the UK economy. It, nonetheless, upgraded the Q2 GDP growth forecast from 0.1% q/q to a still uninspiring level of 0.25% after a solid 0.7% increase in Q1. Following a front-loading of activity in Q1, the UK economy since seems to have lost some momentum as data previously showed GDP in April contracting more than expected (-0.3% m/m) and employment falling for the seventh straight month in May. A weakening labor market also took its toll on May’s retail sales volumes (reported last Friday) as they fell by a much worse than expected 2.7% m/m (-0.5% forecast, +1.3% in April), pushing YTD growth down to just 0.3%. Following weak data and BoE’s somewhat dovish signals, the market boosted the chances of two interest rate cuts this year, with the first move seen in August or September.
Japan: Core inflation accelerates in May, keeping pressure on BoJ to hike rates. Headline inflation eased slightly in May to 3.5% from April’s 3.6%. Meanwhile, core inflation (excl. fresh food) accelerated to 3.7%, marking the fastest pace in over two years (January 2023) and notably above the Bank of Japan’s (BoJ) 2% target. Similarly, the core-core inflation measure, which excludes fresh food & energy, rose to 3.3%, the highest since January 2024, signaling that underlying domestic price pressures remain elevated, especially within the non-fresh food segment. Recent statements by BoJ governor Kazuo Ueda reaffirmed the central bank’s stance on raising rates, which should be data-driven and influenced by sustained wage growth while warning that sticky food-based inflation and US tariff-related uncertainties could require policy adjustment. Markets are currently expecting that the next 25bps rate increase could come in early 2026, though a sooner tightening remains possible, if domestic price pressures remain persistent.
Kuwait: Headline inflation steady but core eases. Consumer price inflation was stable in May at 2.3% y/y, unchanged from April as a slight acceleration in food and beverage price growth was offset by deflation in the furnishings & household maintenance component. Food and beverage price inflation rose to 4.7%, accelerating for the first time in four months with a notable increase in the fish & seafood subcomponent (5.6%). Meanwhile, inflation in the housing services index, which reflects mostly rents and is updated on a quarterly basis, was unchanged at 0.7%. Excluding both food and housing, core inflation, which has been on a moderating trend since October 2023, eased to its lowest level in almost 4 years at 2.3%, benefitting from the softer price rise the furnishings & household maintenance component as all other categories were unchanged on an annual basis. With subdued consumer spending and moderate non-oil growth, we expect average headline inflation for 2025 to range around current levels, with the main upside risks concentrated in the hiking of fees for government services.
Qatar: Inflation picks up in April. Consumer price inflation rose 0.6% y/y in April, still very low but the fastest increase since last November. Sharp price growth in both the communication and miscellaneous goods & services components drove the jump in the headline reading, though it was partially offset by a 4.6% y/y decline in housing, water, electricity and gas, the biggest inflation subcomponent that has been in deflation since September 2023 amid sustained declines in housing rents. Meanwhile, food & beverage inflation eased slightly after returning to positive territory in the preceding month, while the disinflation in recreation and culture subindex eased to -0.4% y/y. With growth in the non-energy economy expected to decelerate slightly this year, headline inflation is expected to remain subdued, particularly given the recent rise in geopolitical tensions in the region that are likely to negatively impact tourism.