UK inflation eased to 3.4% in May, down from 3.5% in April. This decline came despite rising prices for food and furniture. The drop was mainly driven by sharp falls in airfares and petrol costs.
The Consumer Price Index (CPI) figure for May was slightly lower than April’s, complicating the Bank of England’s upcoming interest rate decision. However, experts expect policymakers to keep rates steady at 4.25% this Thursday.
Core Inflation Also Shows a Decline
The Office for National Statistics (ONS) reported that core inflation, which excludes volatile items like energy, food, and alcohol, rose by 3.5% over the past year. This was down from 3.8% the previous year.
City economists had predicted the CPI would fall to 3.4% in May, a forecast that proved accurate. The Bank of England, targeting 2% inflation, is expected to proceed cautiously. The recent fall in CPI mainly reflects cheaper petrol and diesel, which lowered transport costs.
Airfare Prices Drop Due to Timing Differences
Airfares swung dramatically from a 16.2% increase in April to a 3.9% decrease in May. This change is partly explained by Easter shifting from March to April this year, a period when airlines usually raise prices.
Service Sector Inflation Remains High but Is Easing
The Bank of England has avoided large interest rate cuts because inflation in the service sector, traditionally stubborn, remains elevated. Service inflation fell from 5.4% to 4.7%, indicating a recent easing.
Economic Data Points to Slower Growth
Recent data show a slowing UK economy, putting pressure on the central bank to reduce borrowing costs. Wage growth slowed, unemployment rose during February-April, and the economy contracted in April.
Correction to April CPI Figures
Earlier this month, the ONS revealed that April’s CPI was overestimated by about 0.1 percentage points due to a miscalculation related to a car tax increase. The official figure remains unchanged, but future calculations will use corrected data.
Experts Predict Inflation Above 3% for Rest of Year
Monica George Mikael, associate economist at the National Institute of Economic and Social Research, expects inflation to stay above 3% throughout 2025. She cites ongoing wage growth, government spending, and geopolitical tensions in the Middle East as key factors.
She said, “We expect the Bank of England to keep interest rates unchanged on Thursday and implement only one rate cut this year.”
Government Calls for Faster Rate Cuts to Support Families
British Chancellor Rachel Reeves acknowledged the challenges of high living costs. She urged the Bank of England to quicken rate cuts to lower mortgage payments and reduce borrowing costs for businesses.
Reeves stated, “We have made the necessary choices to stabilise public finances and keep inflation under control after the double-digit inflation under the previous government, but there is more work to do.”
She highlighted recent measures like extending the £3 bus fare cap, providing free school meals to over half a million children, and rolling out free breakfast clubs nationwide.
Market Expectations for Future Rate Cuts
Although the Bank of England has not signaled where rates might settle, financial markets expect two cuts this year, bringing the rate down to 3.75%. More cuts are anticipated next year as inflation approaches the 2% target.
Rising Food Prices Cause Concern
Despite the overall inflation drop, food prices rose sharply in May. Food inflation increased to 4.4%, up from 3.4% in April. This rise, coupled with increased furniture prices, offset declines in clothing and footwear, which fell by 0.3% over the past year.
Ruth Gregory, deputy chief UK economist at Capital Economics, warned that rising food prices may worry the Bank of England. She said, “The third consecutive rise in food price inflation to 4.4%, the highest since February 2024, suggests businesses are passing on higher costs from national insurance contributions into sales prices.”
Political Responses to Inflation Trends
Shadow Chancellor Mel Stride criticized the Labour government, blaming its policies for keeping inflation above the central bank’s target.
He said, “Labour’s choice to tax jobs and increase borrowing is stifling growth and fuelling inflation — making everyday essentials more expensive.”
