UBS On-Air: Paul Donovan Daily Audio 'Looking for consequences'

Paul Donovan· Host0:01

Good morning. This is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning, London time, on Tuesday the twenty-sixth of May. If today's US airstrikes against Iran were an attempt to improve the US bargaining position in negotiations, markets do not seem to be buying it. It might be the inherent bias to optimism, but there's been a relatively muted reaction to the events. If anything, the strikes would seem to confirm the Iranian assessment of the talks, implying that a deal is not imminent, rather than the view set out in US President Trump's various social media posts. The Iranian perspective was probably what markets were priced for yesterday, hence the limited response. The UK's May British Retail Consortium Shop Price Index showed little evidence of inflation pressure at the retail level so far. This measure does not include the price of petrol, and price increases overall remained within recent ranges. This is important as it suggests that the second-round effect of profit-led inflation is not yet occurring. Profit-led inflation is a risk, especially in the food sector, but consumers have a heightened sensitivity to price increases, which should work to contain that threat.