UK inflation held steady at 2.8% in May, defying expectations of a rise. Economists had forecast a 3% increase, but the Office for National Statistics (ONS) reported that inflation remained unchanged due to higher transport costs being balanced by a drop in food prices.
Airfares, vehicle taxes, and petrol prices all saw an uptick, with the average petrol price reaching 157.4p per liter and airfares surging by 10.3% month-on-month, mainly driven by Easter and school holiday demand.
However, food price inflation decelerated across various meat, dairy, and vegetable products, causing food and drink inflation to ease to 2.2% from 3% in April, marking the lowest level since December 2024.
Grant Fitzner, Chief Economist at the ONS, noted that inflation held steady in May as conflicting price movements offset each other. While transport costs, including airfares, vehicle taxes, and petrol prices, contributed to pushing inflation up, lower food prices, particularly in meat, dairy, and vegetable items, helped balance the inflation rate.
Chancellor Rachel Reeves emphasized the government’s economic strategy amid global price pressures, stating that inflation stability reflects the effectiveness of their measures in shielding families and businesses from escalating costs, such as energy bills, fuel duty cuts, and rail fare freezes.
The timing of this update coincides with the imminent announcement of the Bank of England’s interest rates decision, with most economists anticipating that the base rate will remain at 3.75%. The Bank of England aims for a 2% inflation target and employs interest rates to manage price increases, aiming to regulate inflation by affecting borrowing costs.
By moderating demand through higher interest rates, borrowing becomes costlier, leading to reduced spending and subsequently lowering inflation. Nonetheless, higher base rates have increased mortgage payments for many homeowners, impacting household finances.
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