Central banks in the US and UK are expected to maintain interest rates this week following a Middle East peace deal that analysts predict will reduce inflationary pressures through lower energy costs.
The US Federal Reserve is forecast to hold its benchmark interest rate at 3.5% to 3.75% on Thursday, marking the first policy decision under new Fed chair Kevin Warsh, appointed by President Donald Trump. Inflation in the US has risen from 2.4% in February to 4.2% in May, a three-year high.
Warsh is expected to indicate that the reopening of the Strait of Hormuz following the weekend peace agreement will ease inflation over the remainder of the year. Prior to the deal, the Fed chair faced mounting pressure to raise rates in response to rising prices.
UK rate decision
The Bank of England is anticipated to hold interest rates at 3.75% despite UK inflation running at 2.8%, above its 2% target. Financial markets are pricing in one additional UK rate rise this year, scheduled for December.
The monetary policy environment affects property financing costs, with recent asking price adjustments reflecting borrowing cost pressures. Bank of England Governor Andrew Bailey stated last week that commercial lenders have already raised rates on loans and mortgages, reducing immediate pressure on the monetary policy committee to act.
James Smith, an economist at ING, said the sustainability of the peace deal remains uncertain. “But if the deal endures and oil starts flowing again, UK inflation would likely stay below 4% and enable the Bank of England to avoid a rate hike this summer,” he stated.
European Central Bank action
Last week, the European Central Bank raised interest rates from 2% to 2.25% after eurozone consumer price inflation rose to 3.2% in May 2026, from 3% in April. ECB President Christine Lagarde told French radio on Monday that higher energy prices are feeding through to other economic sectors.
“When we start to feel second-round effects bubble up – which are risks of wage increases in particular – we necessarily have to take measures,” Lagarde said. Officials are concerned that the Middle East conflict has encouraged aggressive wage bargaining, forcing manufacturers and retailers to implement price increases.
The peace deal triggered an immediate drop in oil prices, falling to a three-month low. All three central banks maintain a 2% inflation target.
Property market participants will monitor rate decisions closely, as financing costs directly impact development feasibility and investor returns. The outlook for borrowing costs remains a key factor in property investment decisions across residential and commercial sectors.
