UK inflation held steady at 2.8% in May, defying expectations of a rise. Economists had forecasted a 3% increase, but the Office for National Statistics (ONS) reported that inflation remained stable due to higher transport costs being counterbalanced by a decline in food prices.
Airfares, vehicle taxes, and petrol prices all saw upticks, with petrol prices reaching 157.4p per liter and airfares surging by 10.3% month-on-month, mainly attributed to Easter and school holidays. Conversely, food price hikes lessened across various meat, dairy, and vegetable products, leading to a decrease in food and drink inflation from 3% to 2.2%, marking its lowest level since December 2024.
Inflation reflects the pace at which prices of goods and services escalate over time. The Bank of England foresees a potential increase in inflation to as high as 3.6% in the upcoming months due to repercussions from the Middle East conflict.
The announcement coincides with the impending decision on interest rates by the Bank of England, with most economists anticipating the base rate to remain at 3.75%. The Bank of England’s inflation target is 2%, and it utilizes interest rates to manage price surges.
Grant Fitzner, Chief Economist at the ONS, noted that while transport expenses like airfares, vehicle taxes, and petrol costs pushed inflation up, this was offset by reduced food prices and declines in other sectors like domestic heating oil. Additionally, manufacturing costs saw a slowdown in the rise of goods leaving factories, partly influenced by a decrease in the price of domestically produced cars.
Chancellor Rachel Reeves emphasized the government’s economic strategy in mitigating rising costs amid global price escalations due to the Middle East conflict. Measures such as energy bill cuts and freezes in fuel duty and rail fares aim to shield families and businesses from financial strain, contributing to a more robust and secure economy.