Interest rates expected to be held by Bank of England

Interest rates are expected to be held by policymakers at the Bank of England (BoE) who are keeping a close eye on events in the Middle East.

The Monetary Policy Committee (MPC) is widely predicted by analysts to keep the benchmark rate at 3.75% for a fourth consecutive meeting.

Interest rates are the primary tool used to control inflation, which is the rate at which prices rise.

The UK inflation rate remains above target but has not risen as high as many had feared given the upheaval caused to economies across the world by the US-Israel war with Iran.

Official figures published on Wednesday showed that inflation remained at 2.8% in the year to May, as the pace of food price rises slowed to a 17-month low.

Over the year to May, transport costs rose by the fastest rate, the Office for National Statistics (ONS) said, while the rate of price increases in meat, dairy, and vegetables eased.

That figure, which was lower than expected, has reinforced expectations that policymakers will not need to increase interest rates at the next announcement made at 12:00 BST on Thursday.

At its last meeting in April, the MPC signalled that interest rates could rise this year as it attempted to curb inflation following a "significant energy price shock" from the Iran war.

US President Donald Trump said a peace deal with Iran was signed on Wednesday, and should lead to the reopening of the Strait of Hormuz.

Oil prices have dropped close to their lowest since the conflict began as traders forecast the return of free-flowing ships through the vital waterway, which normally carries a fifth of the world's oil and gas supplies.

Analysts believe the deal could slow energy and fuel price rises, making the worst case scenarios for inflation unlikely.

However, analysts said price rises were still expected to accelerate in the UK, given the delayed impact of higher wholesale energy prices on domestic gas and electricity prices.