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| UK inflation eases to 3.4% amid falling fuel and air fare prices | UK inflation eases to 3.4% amid falling fuel and air fare prices |
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| Annual drop in May, down from reading of 3.5% in April, offset by rises in cost of food and furniture | Annual drop in May, down from reading of 3.5% in April, offset by rises in cost of food and furniture |
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| Inflation in the UK eased to 3.4% last month after rises in the cost of food and furniture were offset by a steep fall in air fares and petrol prices. | Inflation in the UK eased to 3.4% last month after rises in the cost of food and furniture were offset by a steep fall in air fares and petrol prices. |
| May’s decline in the consumer prices index (CPI), down from the official figure of 3.5% for April, complicates the Bank of England’s interest rates decision on Thursday, although policymakers are still almost certain to hold interest rates at 4.25%. | May’s decline in the consumer prices index (CPI), down from the official figure of 3.5% for April, complicates the Bank of England’s interest rates decision on Thursday, although policymakers are still almost certain to hold interest rates at 4.25%. |
| The Office for National Statistics said its measure of core inflation, which excludes volatile items such as energy, food and alcohol, rose by 3.5% in the last year, down from 3.8%. | The Office for National Statistics said its measure of core inflation, which excludes volatile items such as energy, food and alcohol, rose by 3.5% in the last year, down from 3.8%. |
| City economists had correctly predicted the fall in CPI in May to 3.4%. The Bank’s target is 2% and it is likely to remain circumspect about accelerating the pace of interest rate cuts after the reduction in May’s CPI, which was largely due to falls in the price of petrol and diesel, which brought down transport costs. | City economists had correctly predicted the fall in CPI in May to 3.4%. The Bank’s target is 2% and it is likely to remain circumspect about accelerating the pace of interest rate cuts after the reduction in May’s CPI, which was largely due to falls in the price of petrol and diesel, which brought down transport costs. |
| Air fares tumbled from an increase of 16.2% in April to -3.9% in May, although this was largely because Easter – when airlines traditionally raise fares – was a month later this year, falling in April rather than March. | |
| Services inflation, which has remained high over recent years, began to slow more rapidly, down from 5.4% to 4.7%. The Bank has resisted making steep cuts to interest rates while services inflation has remained sticky. | Services inflation, which has remained high over recent years, began to slow more rapidly, down from 5.4% to 4.7%. The Bank has resisted making steep cuts to interest rates while services inflation has remained sticky. |
| Pressure has increased on the central bank to cut the cost of borrowing, after recent data showed the economy has slowed. Wages growth fell and unemployment increased in the February-to-April quarter, while the economy shrank in April. | |
| The ONS said earlier this month that it had overestimated its CPI reading for April by about 0.1 percentage points because of an error that meant the effect of higher car tax bills was exaggerated. It left the original reading in place as the official figure for that month but said it would use the correctly weighted data in future calculations. | |
| Monica George Michail, an associate economist at the National Institute of Economic and Social Research, said inflation was likely to remain above 3% for the rest of the year amid persistent wage growth and the inflationary effects from higher government spending. | Monica George Michail, an associate economist at the National Institute of Economic and Social Research, said inflation was likely to remain above 3% for the rest of the year amid persistent wage growth and the inflationary effects from higher government spending. |
| “Additionally, the current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year,” she said. | “Additionally, the current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year,” she said. |
| The chancellor, Rachel Reeves, said there was “more to do” to bring down inflation and support households hit by the high cost of living. She is keen for the Bank to accelerate the pace of interest rate cuts to ease monthly mortgage costs and reduce the cost of borrowing for businesses. | The chancellor, Rachel Reeves, said there was “more to do” to bring down inflation and support households hit by the high cost of living. She is keen for the Bank to accelerate the pace of interest rate cuts to ease monthly mortgage costs and reduce the cost of borrowing for businesses. |
| Financial markets still expect two rate cuts to 3.75% by the end of this year and several more next year as inflation is expected to drift back to 2%, although the Bank has been reticent to indicate where interest rates may settle. | Financial markets still expect two rate cuts to 3.75% by the end of this year and several more next year as inflation is expected to drift back to 2%, although the Bank has been reticent to indicate where interest rates may settle. |
| Reeves said: “We took the necessary choices to stabilise the public finances and get inflation under control after the double-digit increases we saw under the previous government, but we know there’s more to do. | Reeves said: “We took the necessary choices to stabilise the public finances and get inflation under control after the double-digit increases we saw under the previous government, but we know there’s more to do. |
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| “Last week we extended the £3 bus fare cap, funded free school meals for over half a million more children and are delivering our plans for free breakfast clubs for every child in the country.” | “Last week we extended the £3 bus fare cap, funded free school meals for over half a million more children and are delivering our plans for free breakfast clubs for every child in the country.” |
| The cost of goods in the shops increased in May after price rises for furniture and food accelerated, offsetting the lower price of clothing and footwear, which declined by 0.3% over the past year. Overall, the price of goods increased from 1.7% to 2%. Food inflation increased to 4.4% in May from 3.4% in April. | The cost of goods in the shops increased in May after price rises for furniture and food accelerated, offsetting the lower price of clothing and footwear, which declined by 0.3% over the past year. Overall, the price of goods increased from 1.7% to 2%. Food inflation increased to 4.4% in May from 3.4% in April. |
| Ruth Gregory, the deputy chief UK economist at Capital Economics, said rising food prices would be a concern to the Bank. | Ruth Gregory, the deputy chief UK economist at Capital Economics, said rising food prices would be a concern to the Bank. |
| “The third consecutive rise in food price inflation to 4.4%, its highest since February 2024, will be a bit of a blow for the Bank as it perhaps provides a tentative sign that firms are passing on more of April’s rise in national insurance contributions in their selling prices.” | “The third consecutive rise in food price inflation to 4.4%, its highest since February 2024, will be a bit of a blow for the Bank as it perhaps provides a tentative sign that firms are passing on more of April’s rise in national insurance contributions in their selling prices.” |
| The shadow chancellor, Mel Stride, accused Labour of being to blame for inflation remaining above the Bank’s target. | The shadow chancellor, Mel Stride, accused Labour of being to blame for inflation remaining above the Bank’s target. |
| “Labour’s choices to tax jobs and ramp up borrowing are killing growth and stoking inflation – making everyday essentials more expensive.” | “Labour’s choices to tax jobs and ramp up borrowing are killing growth and stoking inflation – making everyday essentials more expensive.” |