UK inflation figures released today have defied expectations, delivering another setback for Chancellor Rachel Reeves and her economic ambitions.
Data from the Office for National Statistics (ONS) showed that the Consumer Prices Index (CPI) remained at 3.4 per cent in May. This figure is slightly above the 3.3 per cent many analysts had predicted.
The unexpected hold in inflation has been largely attributed to a rise in food prices, which has outweighed recent falls in airfares and transport costs. Many had hoped for a dip in inflation following April’s significant price hikes, which marked the highest increase in a year.
Economists reacted to the figures by calling them “dismal”, suggesting that the Bank of England is now highly unlikely to lower interest rates when the Monetary Policy Committee meets tomorrow. This will be a blow to ministers who had been looking to monetary policy for support in stimulating the UK’s slowing economy.
Adding to the uncertainty is the potential impact of the escalating conflict in the Middle East. Tensions between Israel and Iran have raised fears of a major spike in global energy costs, which could place further pressure on UK inflation in the months ahead.
In response to the figures, Rachel Reeves acknowledged the ongoing challenges of the cost of living crisis. She reiterated that her top priority remains to ease financial pressure on working households and boost disposable income.
Complicating the economic narrative, the ONS also addressed a previous error in April’s inflation report. Initially reported as 3.5 per cent, the correct figure for April’s annual inflation was in fact 3.4 per cent, due to a miscalculation involving vehicle tax data.
As households continue to feel the squeeze and businesses await policy clarity, all eyes are now on the Bank of England’s decision—though few are expecting any immediate relief through a rate cut.
Chancellor Rachel Reeves has reaffirmed the Government’s commitment to stabilising the economy, emphasising recent efforts to reduce inflation and support working families. She stated that the Government made tough decisions to bring inflation under control, following sharp increases under the previous administration.
Highlighting recent initiatives, Reeves mentioned the extension of the £3 bus fare cap, new funding for free school meals reaching over half a million children, and plans to introduce free breakfast clubs for every child in the country. According to her, these measures aim to contribute to “Britain’s renewal” and improve the lives of working people.
However, Shadow Chancellor Sir Mel Stride offered a more critical view, describing the current inflation figures as “deeply worrying.” He claimed that Labour’s approach—particularly higher taxes on employment and increased public borrowing—is hindering economic growth and fuelling inflation, ultimately driving up the cost of everyday necessities.
The Office for National Statistics (ONS) reported little overall change in inflation for May. Richard Heys, the ONS’s acting chief economist, noted that a range of shifting prices across sectors led to the steady rate. He pointed out that airfares had fallen, in contrast to a sharp rise at the same time last year, influenced by changes to school holiday and Easter timing. Fuel prices also decreased, offering some relief.
On the other hand, food prices continued to climb, with particular increases seen in chocolates and meats. Prices for household items such as fridge freezers and vacuum cleaners also rose, contributing to continued financial pressure for many families.
There was some modest progress in core inflation, which excludes volatile items like energy and food. It dropped to 3.5 per cent over the 12 months to May, down from 3.8 per cent in April. Goods inflation rose slightly from 1.7 per cent to 2 per cent, while inflation for services eased from 5.4 per cent to 4.7 per cent.
Despite these figures, the overall pace of price increases in May mirrored that of April, when numerous household bills went up. Ofgem’s energy price cap increased by 6.4 per cent in April, raising average household energy bills by over £9 per month.
Other household costs also saw notable rises. Water charges, council tax, and mobile and broadband tariffs all went up, as did the cost of TV licences. These widespread increases have continued to weigh on household budgets.
Meanwhile, global tensions are adding fresh concerns. Oil prices have been climbing after Israel’s strike on Iran’s nuclear facilities, sparking fears that Middle East oil supply could be disrupted. Such developments may push up fuel prices in the UK, reversing some of the recent gains made in lowering inflation.
Suren Thiru, Economics Director at ICAEW, described the inflation figures as a “dismally modest drop” that did little to ease underlying concerns. He attributed the apparent improvement to seasonal factors, particularly Easter falling in April, rather than any significant fall in price pressures.
Thiru warned of a turbulent few months ahead, with ongoing economic uncertainty likely to send inflation slightly higher over the summer. While lower energy bills are expected from July, global instability and weak domestic demand may complicate inflation’s trajectory.
Given the current volatility, an interest rate cut this week now appears unlikely. Many economists believe the Bank of England will wait until August before considering another adjustment, allowing more time to assess global conditions and their potential impact on the UK economy.
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