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Central banks including the Bank of England and the Federal Reserve have warned that a provisional US-Iran peace agreement only partially eases pressure on the global economy, with inflation risks still elevated as energy prices remain higher than before the conflict and demand continues to rise.
The US and Iran reached a preliminary deal to end the conflict, but monetary policymakers said inflation risks remain. They pointed to energy prices staying above pre-conflict levels and continued strength in US demand.
Bank of England Governor Andrew Bailey said inflation pressures are still “quietly accumulating.” The BoE held its policy rate at 3.75% and said it is prepared to raise rates again if prices pick up.
In the UK, unemployment fell to 4.9% in the three months to April 2026, down from 5% in Q1 2026, according to data released on 18 June. Separate official figures showed the UK annual inflation rate remained at 2.8% in May 2026.
The UK economy contracted 0.1% in April 2026 after growing 0.3% in March 2026, with high energy prices cited as reversing strong Q1 growth.
In the United States, the new Federal Reserve Chair Kevin Warsh emphasized that bringing inflation back to the 2% target remains the top priority, reinforcing expectations of possible rate hikes. The Fed funds rate is currently around 3.5% to 3.75%.
Analysts said the US-Iran deal reduced the risk of a sharp oil-price spike tied to supply constraints. After the agreement was announced, oil prices fell to around $76 per barrel on expectations that shipping through the Hormuz Strait would improve.
New developments, however, suggest the energy-market outlook remains uncertain. In the early hours of 19 June, the Swiss Foreign Ministry said technical talks between the US and Iran at the Burggenstock resort were canceled. Officials from both sides had planned to discuss steps to implement the peace accord.
The talks were canceled amid renewed fighting between Israel and Hezbollah, Iran-backed in Lebanon. The White House said Vice President JD Vance would not attend the meeting as planned due to unresolved issues related to the next round of negotiations. Sources also said Iran postponed participation to protest new Israeli airstrikes.
Economists said that even if a ceasefire holds, fully restoring Hormuz shipping and returning oil production to pre-conflict levels will take time, potentially keeping energy prices relatively high and sustaining inflation pressures.
Beyond oil, the conflict has pushed up prices of other commodities including fertilizers and metals, increasing supply-chain pressures. Some analysts forecast food prices could rise in coming months due to fertilizer shortages and El Niño effects.
In the US, core inflation remains a key concern for the Fed. The personal consumption expenditures (PCE) price index core rose to 3.3% in April 2026 and is expected to remain around that level for the rest of the year, well above the 2% target.
David Wilcox, a former Fed official and senior research fellow at the Peterson Institute for International Economics, argued that if the Fed is committed to returning inflation to target, it will likely need to keep raising rates. He said inflation has remained above 2% for an extended period and is no longer only an energy-price issue.
Other central banks also maintained a cautious approach. The Reserve Bank of Australia warned that global oil-supply issues will take time to resolve. The Bank of Japan continued its policy normalization path with a 1% rate, the highest in 31 years.
The BoJ said core inflation risks overshooting 2% due to rising crude prices, and it will continue raising the policy rate in response to economic developments, price dynamics, and financial conditions. It also noted that recession risk appears to have diminished partly due to government efforts to secure alternative raw-material supplies from the Middle East.
While rate hikes can slow the economy by raising borrowing costs for firms, limiting investment, and dampening private consumption, the BoJ said inflation-risk management remains a priority. The yen has continued to depreciate toward around 160 per USD despite currency-market interventions from late April to early May 2026, raising concerns about higher import costs for Japan.
The European Central Bank previously raised rates and suggested inflation this year could be near 3%, above target.
On 18 June, Indonesia’s central bank (BI) raised its policy rate by 25 basis points to 5.75%. The move reflects caution about rupiah weakness and imported inflation, as the domestic currency slid to around 18,000 rupiah per USD.
In the past month, BI hiked rates three times, totaling 100 basis points. BI’s policy rate had been kept at 4.75% since September 2025 until an unscheduled 50-basis-point increase, followed by a 25-basis-point raise on 9 June 2026.
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