The week ahead 22 June 2026 - Middle East peace deal signed as Bank leaves Base Rate unchanged
What to watch out for in the UK economy and property market this week.
The Middle East peace deal cleared its first major hurdle last week, when the US and Iran formally signed the agreement late on Wednesday, which was ahead of the Friday deadline. The price of oil continued to slide last week, falling below $80 a barrel. Rather than ending all disputes, the deal leaves several key issues to be settled through further negotiations, including whether transit of the Strait of Hormuz will remain toll-free. However, long-term we suspect the war will encourage the building of more green power infrastructure across the world, plus pipelines in the Middle East that by-pass the Strait.
The prospect of peace, assuming it lasts, helped justify the Bank of England Monetary Policy Committee (MPC) leaving the Base Rate unchanged at its latest policy meeting. That UK inflation remained static at 2.8% in May strengthened the MPC’s case for doing nothing. The US Federal Reserve also left its policy interest rate steady last week. We believe UK inflation will briefly rise above the 3.0% mark later this year, but medium to long-term concerns about inflation are easing. Consequently, it is possible there will not be any rise in the Base Rate this year. Our full analysis of the Bank of England rate decision can be found here.
Political journalists and pundits have a busy week ahead of them, following Andy Burnham’s win in the Makerfield by-election. The question now is how long the Westminster drama takes to play out? However, it is looking increasingly likely a Burnham government is coming; although based on statements so far, economic policy looks set to see little change. Hence the muted reaction from the bond market on Friday to the by-election result - the ten-year gilt yield stood at 4.82%, which was little changed on a week earlier.
This week will see early draft PMI index figures for the major global economies, including the UK. The PMI is a survey of businesses on trading conditions. The results are converted into a score whose convention is a reading over 50 indicates growth in the commercial side of the economy.
The UK PMI index fell marginally below the 50 mark in May, probably with the war and inflation as the main causes. It is too soon to expect the impact of the Middle East peace deal to have reached businesses, so we are forecasting a reading at or close to the 50.0 mark for June, and probably July also. We are more optimistic on PMI readings from around September onwards,assuming the peace deal lasts.
This week's figures
Tuesday 23rd June
UK 'Flash' PMI Index, June
49.7 Previous
50.0 Forecast
Most economic indicators point to sluggish conditions in the UK economy, and it is too soon for a ‘peace deal recovery’. So, we are predicting a reading at the 50.0 mark, indicating no growth.
Euro Area 'Flash' PMI Index, June
48.5 Previous
49.0 Forecast
The Eurozone has a large exposure to international trade, so the war in the Middle East has had a significant impact on its economy. The PMI for the bloc was below 50.0 in April and May, and we expect the same to be true in June.
