UK Inflation Holds Steady
Inflation held steady for the month. CPI was 2.8% in the year to May, unchanged from April and its lowest since early 2025, but the calm headline figure masked a reshuffling underneath. Food inflation eased to 2.2%, its lowest since December 2024, and housing costs kept slowing. Pulling the other way, transport inflation jumped to 6.8%, its highest since 2022, on pricier motor fuel, air fares and vehicle excise duty, while core inflation edged up to 2.6% and services to 3.7%, a firm a reminder that domestic price pressures have not fully cleared.
The headline figure is welcome, but it rests on shifting ground. Much of the earlier fall came from lower energy bills, and that tailwind is now reversing. Ofgem has confirmed a rise in the price cap from 1 July, tied to higher wholesale gas prices. With services inflation sticky and the Middle East conflict not fully resolved despite a ceasefire, inflation could continue to feature going forward.
Meanwhile The Bank of England continued its current course, holding rates at 3.75% with a 7-2 vote. Governor Andrew Bailey signalled he was content to live with above-target inflation for now, but would move promptly if those pressures began to spread. Markets, at present, are still estimating one more rise before year-end.
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