UK Inflation Holds at 2.8%, Below Forecasts, Easing Rate Pressure
Consumer prices rose 2.8% in May, below forecasts, as cheaper food offset costlier air fares, clearing the way for the Bank of England to hold rates.
Britain’s cost-of-living squeeze eased a little more than expected last month. Consumer prices rose 2.8% in the year to May, the Office for National Statistics said on Wednesday, unchanged from April and below the 3% economists had forecast.
The steadier reading hands the Bank of England some breathing room. With inflation holding rather than climbing, the central bank is widely expected to keep interest rates at 3.75% when it meets this week, rather than resume the cuts borrowers have been waiting for or the hikes that stubborn prices might have forced.
Underneath the headline was the usual tug-of-war. Transport was the biggest upward force, led by air fares, which jumped 10.3% from April to May as the summer travel season pushed up ticket prices. Pulling the other way was food and non-alcoholic drink, the part of the budget households feel most directly, which made the largest downward contribution. A broader measure that includes housing costs, CPIH, sat a touch higher at 3.0%.
For households, 2.8% still means prices rising, just no faster than the month before, and well down from the double-digit peaks of a few years ago. For mortgage holders and savers, the more consequential number is the Bank’s 3.75%: a hold keeps monthly repayments where they are and leaves the timing of the next cut, which markets had hoped might come sooner, an open question.
Britain’s inflation has cooled sharply from a peak above 11% in late 2022, but the last stretch back to target has proved stubborn, with services prices and wage growth keeping underlying pressure alive. Economists had braced for a small rise in May; the flat reading instead suggested the squeeze is loosening, if unevenly, and gives the Bank room to wait rather than move.
Inflation that refuses to fall further is its own kind of problem, parking the Bank between a slowing economy that argues for cheaper money and prices that have not quite returned to target. May’s figures do not resolve that tension. They buy a little more time before it has to be confronted, with the next reading, and the next air-fare-heavy travel month, already on the way.
