UK inflation unexpectedly remained at 2.8% in May, confounding forecasts of a rise to 3% after the Iran conflict pushed up energy costs, but slower increases in food prices provided a surprise buffer.
Motor fuels were 24.6% higher than a year earlier, the Office for National Statistics (ONS) said, pushing overall transport inflation to 6.8% – the highest since December 2022. Airfares and vehicle taxes also contributed to the upward pressure.
“UK inflation stayed at 2.8% in May, defying 3% forecasts, as slower food price rises offset rising petrol costs.”
But that was offset by a sharp deceleration in food price rises. Food inflation fell from 3% in the year to April to 2.2% in the year to May, the slowest rate since December 2024. Meat, dairy and vegetable items all saw smaller increases, with beef and veal rising at 9.4% compared with 13.2% the previous month and 18.8% in March.
Grant Fitzner, the ONS's chief economist, said: “Inflation held steady in May as various price movements offset each other. The main upward movement came from transport, with air fares, vehicle taxes and petrol prices all pushing up inflation. These were offset by lower food prices, with decreases in inflation seen across a range of meat, dairy and vegetable items compared to last month.”
The peace deal agreed between the US and Iran earlier this week is expected to reopen the Strait of Hormuz, which had been closed to shipping, driving up oil prices. Economists hope that will ease price pressures further, though the British Retail Consortium warned that food inflation was likely to rise in the coming months.
The Food and Drink Federation cautioned that prices still did not reflect the inflation caused by the Strait of Hormuz closure. Its chief executive, Karen Betts, said: “It generally takes several months for the increased costs paid by farmers, processors and manufacturers to filter into raised prices at the tills,” partly due to long-term contracts for energy and ingredients.
Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research, said there was expected to be a “sizeable” upward impact on inflation when Ofgem sets its energy price cap in July. “The lagged effects of higher oil prices are still feeding through,” she said, adding that if the US-Iran deal collapsed, “oil may rebound and reinstate upward pressure on inflation”.
Chancellor Rachel Reeves said: “While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady. We’re 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 reading, with the yield on 10-year government bonds dropping to 4.74%, the lowest in a month. The Bank of England’s monetary policy committee, widely expected to leave rates on hold at 3.75% when it meets on Thursday, now appears even less likely to raise them.