Executive Summary
The past week was dominated by the OECD's updated Economic Outlook, released around June 2-3, which revised down UK growth expectations for 2026 to 0.9% while projecting inflation to rise to 3.7%. This fresh assessment reinforced the view that the Bank of England will maintain its current 3.75% Bank Rate at the upcoming June 18 meeting. Broader market sentiment remained measured, with the FTSE 100 showing modest fluctuations around the 10,350 level.
Key Developments
- On or around June 2-3, the OECD released its Economic Outlook, forecasting UK GDP growth of 0.9% in 2026 and 1.1% in 2027, with inflation expected to peak at 3.7% this year before easing.
- Midweek data context highlighted April CPI at 2.8%, the lowest since March of the prior year, with the May reading scheduled for release on June 17.
- The Bank of England confirmed its next Monetary Policy Committee decision for June 18, with markets pricing in a near-certain hold at the current 3.75% rate.
- Equity markets traded in a narrow range, with the FTSE 100 closing near 10,368 on June 5 before modest declines later in the period.
Implications for Investors
The OECD revision underscores downside risks to near-term growth from elevated energy costs, which could weigh on consumer spending and corporate margins in the UK. With the BoE likely on hold into late 2026, borrowing costs are expected to remain elevated, supporting sterling but pressuring rate-sensitive sectors. In a global portfolio context, UK assets may offer relative stability compared with more exposed emerging markets, though investors should monitor incoming inflation data for any shift in policy expectations.
Risks & Opportunities
- Risk: Further escalation in Middle East energy prices could push inflation higher than projected, delaying any eventual rate cuts and increasing volatility in UK fixed-income and equity markets.
- Opportunity: Resilient Q1 GDP momentum and contained core inflation readings may support UK equities if global risk sentiment improves and energy pressures ease sooner than expected.
Global Capital-Flow Context
Geopolitical tensions in the Middle East have contributed to a cautious global risk environment, with investors favoring safer assets and prompting modest outflows from higher-beta markets. UK government bonds have seen relatively stable demand amid expectations of prolonged higher policy rates, while equity flows into UK markets remained subdued compared with earlier in the year. Cross-border investment continues to reflect broader caution over energy-driven inflation across Europe and the UK.