UK inflation remained at 2.8% in the year to May, surprising the market which had expected it to rise to 3% on the back of higher energy prices caused by the Middle East war.
The rate is still above the Bank of England’s 2% target but the latest reading from the Office for National Statistics makes the Bank more likely to leave the cost of borrowing unchanged when its monetary policy committee meets tomorrow.
The biggest contribution to inflation was transport prices, in particular air fares and motor fuel. The price of petrol and diesel soared by 24.6% in the 12 months to May 2026 – the highest since September 2022.
Some farmers are still warning of increases in food prices later this year because of disruption in the Strait of Hormuz since the start of the Iran war in February.
ONS chief economist Grant Fitzner, said the inflation rate held steady as rises in the prices of air fares, vehicle taxes and petrol was offset by lower food prices.
Mr Fitzner said decreases in inflation were “seen across a range of meat, dairy and vegetable items compared to last month, as well as the cost of domestic heating oil, which fell back after climbing in recent months.”
The annual cost of raw materials continued to increase, led by rises in the cost of chemicals. The increase in the cost of goods leaving factories also slowed, partially due to a drop in the cost of domestically produced cars, he added.
Chancellor 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.
“We’re protecting families and businesses from rising costs, with cuts in energy bills and freezes in fuel duty and rail fares. This is the right economic plan to build a stronger more secure Britain.”
Alpesh Paleja, deputy chief economist at the CBI, said: “Inflation was widely expected to pick up in May, so the latest data comes as a welcome surprise.
“But this is likely to be the calm before the storm, with price pressures set to see a pronounced rise over the coming months.
“The direct contribution from higher energy costs is set to increase – particularly with households’ energy bills rising from June – and this is likely to feed through to other parts of the inflation basket.
“While households are still likely to face a prolonged squeeze on living standards, the outlook is now less challenging than it appeared only a few weeks ago.”
Luke Bartholomew, deputy chief economist, at Aberdeen Group said: “With inflation coming in softer than expected again, the pressure on the Bank of England to hike rates this year will continue to fade, although there may still be a couple of policymakers who vote for a rate increase tomorrow.
“Despite energy prices having fallen recently, there is more inflationary pressure to come for the UK, when the Ofgem price cap moves higher next month. So, the Bank will still want to remain vigilant to the impact of higher household energy bills on broader inflation expectations.
“But with the economy otherwise relatively weak, it is plausible speculation begins to turn once again to when the Bank will cut rates again, not hike.”
Separately, a new survey shows Scottish manufacturers more confident about the year ahead than they were 12 months ago and continuing to invest despite rising operational pressures and an ongoing backdrop of global macro-economic uncertainty.
The 2026 MHA Manufacturing & Engineering Report shows that 85% of senior executives surveyed in Scotland expect growth above 3% in the next 12 months, up from 75% in 2025. The UK and Ireland growth figure was 81%.
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