UK Inflation Holds at 2.8% in May as Food Price Rises Ease to 17-Month Low
UK inflation registered an unexpected hold at 2.8% for the year to May, according to new figures from the Office for National Statistics (ONS). This stability defies expert predictions that inflation, the rate at which the cost of goods and services is rising, would reach 3% and continue increasing in the coming months.
The ONS reported that transport costs saw the fastest rate of increase over the year to May. Motor fuels were 24.6% higher than the previous year, contributing to an overall transport inflation of 6.8%, the highest annual rate since December 2022. Airfares and vehicle taxes also pushed inflation upwards.
However, this was counterbalanced by a significant easing in food price rises, which fell to 2.2% in the year to May – the slowest rate since December 2024. Decreases were observed across a range of meat, dairy, and vegetable items. For instance, beef and veal price increases slowed to 9.4% in May, down from 13.2% in April.
Analysts suggest that the recently agreed peace deal between the US and Iran could mean future inflationary increases are smaller than previously anticipated. However, the Food and Drink Federation cautioned that current prices do not yet reflect the full inflation caused by the closure of the Strait of Hormuz, with increased costs for farmers and manufacturers taking several months to reach consumers due to long-term contracts.
The British Retail Consortium (BRC) attributed easing food inflation to a competitive supermarket sector but forecast a potential rise in food inflation in the near future. Domestic heating oil, which had risen sharply due to the Middle East conflict, also saw a decline.
Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research, warned of a “sizeable” upward impact on inflation when Ofgem announces its energy price cap in July, noting that “lagged effects of higher oil prices are still feeding through.” She also cautioned that a collapse of the US-Iran deal could reinstate upward pressure on inflation.
Chancellor Rachel Reeves stated the government was “protecting families and businesses from rising costs.” Shadow Chancellor Mel Stride countered, asserting that “prices are still rising too fast” and criticising government policy for the UK’s high inflation compared to other G7 nations.
These figures precede the Bank of England’s interest rate decision on Thursday, where economists widely expect the core interest rate to remain at 3.75%. The Bank’s target for inflation is 2%. While the US-Iran deal offers some relief, experts like Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, anticipate a “painful hangover from the Iran conflict,” with energy and supply chains potentially taking months to normalise, delaying significant easing until late 2026. Yael Selfin, chief economist at KPMG UK, believes the new figures strengthen the case for holding interest rates.
