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Inflation in the UK held steady at 2.8% in the year leading up to May, largely due to a slowdown in the rise of food prices, which have reached their lowest pace in 17 months, according to recent data from the Office for National Statistics (ONS). While overall inflation showed no increase compared to the previous month, specific categories experienced different trends. Transport costs, for example, rose at the fastest rate in the same period, propelled by higher prices in airfares, vehicle taxes, and petrol.
The year-on-year increase for motor fuels was notably 24.6% in May, contributing to a transport inflation rate of 6.8%, marking the highest annual rise since December 2022. In contrast, food inflation declined from 3% in April to 2.2% in May, the slowest rate since December 2024. Some food items, such as beef and veal, though still expensive, showed a marked deceleration in price increases—the annual rise dropped to 9.4% in May from 13.2% the previous month. According to Grant Fitzner, the ONS’s chief economist, these opposing movements in transportation and food prices balanced out to keep the overall inflation rate unchanged.
Analysts had predicted inflation could climb to 3% in May and continue increasing throughout the year due to the ongoing effects of the conflict in the Middle East. However, the recently agreed peace deal between the US and Iran may moderate these anticipated rises. Karen Betts, Chief Executive of the Food and Drink Federation, explained that the full impact of cost increases is delayed, as higher expenses incurred by farmers, processors, and manufacturers take several months to be reflected in retail prices, partly because long-term contracts for energy and ingredients tend to buffer immediate price changes.
Energy prices present a complex picture. Domestic heating oil, which is not subject to the usual price caps on energy bills, has fallen after earlier sharp increases linked to the conflict. Still, Charlotte O’Leary, an associate economist at the National Institute of Economic and Social Research, warns of a potentially significant inflationary effect in July when Ofgem resets the energy price cap. She also highlighted the risk that if the US-Iran agreement were to collapse, oil prices might surge again, putting renewed upward pressure on inflation. Meanwhile, government officials emphasize measures such as energy bill cuts and freezes on fuel duty and rail fares to shield households and businesses from rising costs. However, critics argue inflation remains too high and are critical of past decisions that, in their view, have left the UK vulnerable in the latest energy crisis.
With the Bank of England set to announce its next interest rate decision shortly, economists are largely forecasting a pause at the current rate of 3.75%. Forecasts had suggested inflation could peak between 3.5% and 4% later in 2026, influenced by Middle East tensions filtering through to household expenses. Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, noted that although hostilities seem to have ceased, the UK still faces a lingering impact, with supply chains expected to take months to stabilize, delaying significant relief from inflation until later in the year. Similarly, Yael Selfin, KPMG UK’s chief economist, expressed that recent data support maintaining interest rates, given the absence of clear signs that underlying inflationary pressures are strengthening
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