UK inflation holds steady at 2.8% in May

U.K. inflation remained steady at 2.8% in May, slightly below market expectations, according to official data released on Wednesday.

Economists polled by Reuters had forecast that the annual inflation rate would rise to 3% during the month. However, figures showed prices holding at the same level as April, when inflation had eased to 2.8%.

The previous decline was largely attributed to changes in the United Kingdom’s regulated energy price cap, although analysts had expected the impact to be temporary. The price cap is set to increase by around 13% later this summer, which could push energy costs to their highest level in two years.

The latest reading places U.K. inflation below the eurozone rate of 3.2% and well under the United States’ 4.2% recorded in May.

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According to the Office for National Statistics (ONS), transport costs were the main contributor to inflation during the month, partly offset by declines in food and non-alcoholic beverage prices.

Air fares recorded a sharp monthly increase of 10.3%, while higher motor fuel and sea travel costs also added upward pressure. Analysts said the timing of the Easter holiday may have contributed to the rise in travel-related prices.

Fuel prices also edged higher, with petrol increasing by an average of 0.6 pence per litre between April and May. In contrast, prices had fallen during the same period last year. Overall, petrol costs reached their highest level since November 2022, when global energy markets surged following Russia’s invasion of Ukraine.

At its latest meeting, the Bank of England’s Monetary Policy Committee voted to keep the benchmark interest rate unchanged at 3.75%.

Policymakers reiterated that monetary policy cannot directly control energy prices, particularly amid ongoing global volatility in oil and gas markets.

Market expectations suggest a 95% probability that the Bank of England will maintain rates at its upcoming meeting, according to LSEG data, although investors still anticipate a possible rate hike later this year.

Investment strategist Scott Gardner of JPMorgan Personal Investing said the latest figures may ease concerns that inflation could rebound sharply in the near term.

He added that markets will closely watch upcoming energy price adjustments and their impact on household spending.

Gardner further noted that policymakers are likely to remain in a “wait-and-see” mode as geopolitical uncertainty and energy market fluctuations continue to influence the inflation outlook.