The UK’s inflation rate remains at 2.8 per cent for the year to May, according to the latest figures from the National Office for Statistics (ONS).
That’s despite air fares surging and motor fuel tipping higher too as the price of oil shot up, with transport prices the biggest contributor to inflation figures for the month, up 6.8 per cent – the highest annual rate rise recorded for the sector since December 2022.
Air fares alone rose 10.3 per cent between April and May of this year, the ONS said, with the timing of Easter and the school holidays also a factor.
In better news for consumers, food and non-alcoholic beverages fell in price between April and May this year, and rose on a 12-month basis at a slower pace than previously, making it the biggest downward contributor.
The figures come as a surprise to most economists who had expected the data to show a rise to 3 per cent, and perhaps even beyond, after first dropping to the present level in April.
It also likely gives the Bank of England extra confidence to hold interest rates at 3.75 per cent when they vote on Thursday.
ONS Chief Economist Grant Fitzner said “a range of meat, dairy and vegetable items [contributed to decreasing inflation] compared to last month, as well as the cost of domestic heating oil,” which has fallen back significantly after rocketing in the early weeks of the Iran war.
“After last month’s slowdown, inflation held steady in May as various price movements offset each other,” he said. “The main upward movement came from transport with airfares, vehicle taxes and petrol prices all pushing up inflation.
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“The annual cost of raw materials continued to increase, led by rises in the cost of chemicals, while the increase in the costs of goods leaving factories slowed, partly due to a drop in the cost of domestically produced cars.”
Inflation holding at this level will give some hope that the cost of living squeeze will not play out as badly as had been anticipated earlier in the first half of the year, after the Iran war sent energy costs spiralling.
However, Lindsay James, investment strategist at Quilter, noted that there will still be some knock-on effects to be felt as food production continues to face several pressures.
“After inflation surprisingly dropped below 3 per cent last month, it has managed to keep pace at the same rate, surprising the market which expected it to bounce back.” she said.
“While the war in the Middle East is over, for now, and normality can supposedly resume, inflation has managed to hold steady, though the likelihood is that it won’t suddenly start falling for a number of months. As a result, today’s figure is a pleasant surprise.
“Going forward, the picture looks more complicated. The energy price cap will rise 13 per cent from July as a result of elevated oil and gas prices, so the benefits of the US-Iran resolution will not be immediately felt.
“Indeed, food prices are likely to see greater impact from higher costs of production as the cost and availability of fertiliser, energy and transportation remains restricted until the Strait of Hormuz is fully opened again. Meanwhile, there are increasing concerns we are likely to see the most powerful El Nino weather system on record in the months ahead, which has the potential to ruin crops and harvests.”
With prices still set to rise later in 2026, finance experts therefore continue to caution savers to ensure their cash is earning an interest rate well above the rate of inflation.
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “Today’s inflation figure holding is welcome, but nobody should mistake it for the start of a trend. The drop last month was largely down to base effects and lower energy costs that pre-date the conflict in the Middle East. With a higher energy price cap coming and fuel costs already climbing, most forecasters expect inflation to be heading back above 3 per cent in the coming months and potentially closer to 4 per cent by the end of the year.
“For anyone with savings sitting in a low-interest current account or an old savings product they haven’t reviewed for a while, this should be a wake up call.
“Inflation doesn’t need to hit the peaks we saw in 2022 to quietly eat into the value of your money, and cash that isn’t earning a competitive return is losing ground in real terms.”
For businesses, they remain trying to absorb costs from all angles while being pressured to keep prices low for end customers.
“Manufacturer input costs are rising, including for transport, packaging and energy, and we expect food inflation to pick up this year and into next,” said Karen Betts, chief executive of The Food and Drink Federation.
“With companies also up against political uncertainty and high employment costs, it’s vital that whatever the outcome of any leadership contest, the government refocuses on its growth mission,” a statement from BusinessLDN added, while the British Retail Consortium urged the government to bring in “a reduction in non-commodity charges, which are driving high energy bills, allowing retailers the breathing space to deliver savings for their customers.”
