Inflation held steady at 2.8% in the year to May, confounding expectations of a rise to 3% as slower food price rises offset surging transport costs driven by the Iran conflict. The Office for National Statistics (ONS) said the rate at which the cost of goods and services is rising remained unchanged, fuelled by higher airfares, vehicle taxes and petrol prices – but countered by easing inflation across meat, dairy and vegetables.
Motor fuels were 24.6% higher than a year earlier, pushing overall transport inflation to 6.8%, the highest since December 2022. Yet food price inflation dropped from 3% in April to 2.2% in May, the slowest since December 2024. Grant Fitzner, the ONS’s chief economist, described a month of offsetting movements: “The main upward movement came from transport… These were offset by lower food prices, with decreases in inflation seen across a range of meat, dairy and vegetable items.”
“UK inflation unexpectedly held at 2.8% in May as slower food price rises offset transport cost surges from the Iran conflict.”
The benign reading raised hopes that the impact of the war – which closed the Strait of Hormuz to shipping, driving up oil prices – might be more muted than feared. Analysts pointed to the US-Iran peace deal agreed earlier this week as a potential relief valve. However, the Food and Drink Federation warned that “prices still don’t reflect the inflation caused by the closure of the Strait of Hormuz”. Chief executive Karen Betts explained that increased costs paid by farmers and processors typically take months to reach supermarket shelves, partly due to long-term energy and ingredient contracts. Similar caution came from the British Retail Consortium, which said easing food inflation showed supermarkets were highly competitive but added that food inflation was likely to rise in the coming months.
Chancellor Rachel Reeves said the government was “protecting families and businesses from rising costs, with cuts in energy bills and freezes in fuel duty and rail fares”. The Treasury’s cost of borrowing fell after the figures, with the yield on 10-year gilts dropping to 4.74%, the lowest in a month. The Bank of England’s monetary policy committee – widely expected to leave rates unchanged at 3.75% when it meets on Thursday – now has further reason to hold, as weaker-than-expected inflation lessens the need for rate rises. Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research, cautioned that a “sizeable” upward impact on inflation is expected when Ofgem sets the energy price cap in July, and warned that “should the [US-Iran] deal collapse, oil may rebound and reinstate upward pressure on inflation”.