Inflation Holds Steady
UK Inflation Holds Steady at 2.8% in May, Bolstering Case for Cautious Bank of England.
Key Points
ONS Chief Economist Grant Fitzner said inflation was steady in May because “various price movements offset each other,” with the “main upward movement” coming from transport—specifically “airfares, vehicle taxes and petrol prices all pushing up inflation.”
While CPI was flat at 2.8% in May, CPIH (which includes owner occupiers’ housing costs) rose to 3.0%, also unchanged from April—highlighting that the wider inflation picture was not equally soft.
Lloyds also continued share buybacks: it bought 2,632,073 ordinary shares on June 16 at a volume-weighted average price of 103.6345p and said it intended to cancel them.
The Scottish Friendly’s Kevin Brown warned that a flat inflation rate can still mean hardship, saying: “inflation doesn’t need to be rising for the cost-of-living squeeze to remain painful.” The report also noted fuel pressure: the average petrol price rose “by 0.6 pence per litre…to 157.4p per litre.”
In response to the data, Labour finance minister Rachel Reeves said: “While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady.” The same report cautioned that inflation could still rise even after the US-Iran deal to end the conflict, as energy costs remain above pre-war levels.
UK inflation held steady at 2.8% in May, matching April's 13-month low and coming in below the market's expected 3.0%, according to ONS data released on June 17. The surprise soft print lands just one day before the Bank of England's Monetary Policy Committee meets to decide whether to cut interest rates from their current 3.75%.
ONS Chief Economist Grant Fitzner said the flat reading was the result of "various price movements offset each other," with transport costs — airfares, vehicle taxes, and petrol prices — pushing up while falling food prices pulled back the other way, Scottish Financial News reported.
Transport Lifted Prices, Food Pulled Them Back Down
The headline CPI number masked a tug of war inside the basket. Transport was the biggest upward driver. Petrol rose 0.6 pence per litre in May, reaching 157.4p per litre, Scottish Financial News reported. Airfares and vehicle taxes also pushed higher. On an annual basis, motor fuels are up roughly 25% compared to last year.
Food and non-alcoholic beverages went the other way. That category slowed to 2.2% annual inflation, down from 3.0% in April — its lowest level since December 2024. Services inflation, however, accelerated to 3.7% from 3.2%. That is the number the Bank of England watches most closely as a sign of wage-driven price pressure, according to Arise TV.
Housing Costs Tell a Harder Story Than the Headline
The headline 2.8% figure does not capture the full picture for households. CPIH — the broader measure that includes owner occupiers' housing costs — held at 3.0% in May. That means families who own their home are dealing with a wider inflation squeeze than the headline suggests, Scottish Financial News reported.
Kevin Brown, a savings specialist at Scottish Friendly, warned against reading the flat number as good news for households. "Inflation doesn't need to be rising for the cost-of-living squeeze to remain painful," he said. Barclays data shows consumer card spending rose just 0.8% in May — well below the 3.0% CPIH rate — meaning people are buying fewer things for more money.
Bank of England Likely to Hold Rates, but July Looms Large
Most analysts now expect the Bank of England to keep its base rate at 3.75% when it meets on June 18. Yael Selfin of KPMG said the data "strengthens the case for a continued cautious approach," according to San Luis Obispo. The softer print gives the MPC cover to wait rather than act.
But the calm may not last. The Ofgem energy price cap is expected to reset higher in July, potentially adding £221 to the average annual household bill. That could push CPI back toward 3.4% by the end of the quarter. The US-Iran peace deal struck on June 14 sent Brent crude down sharply, but analysts warn it will take months for lower oil prices to reach consumers at the pump, according to The Epoch Times.
Reeves Claims Victory While Lloyds Watches the Rate Path
Chancellor Rachel Reeves was quick to claim credit. "While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady," she said, as reported by Arise TV. Shadow Chancellor Mel Stride pushed back, arguing families are still paying the price of "damaging tax hikes" and that 2.8% remains well above the BoE's 2% target.
Lloyds Banking Group shares held broadly steady on the news. The bank completed a buyback of 2,632,073 ordinary shares on June 16 at a volume-weighted average price of 103.6345p, which it intends to cancel, according to Brandi Con Image. For Lloyds and other lenders, a "higher-for-longer" rate environment supports net interest margins — but it also raises the risk of consumer loan defaults if household finances keep tightening.
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