UK inflation steady at 2.8% in May despite Middle East conflict boosting fuel prices
UK inflation unexpectedly remained at 2.8% last month, defying forecasts of a rise to 3%, as higher transport and fuel costs were offset by slower food price increases.
According to the Office for National Statistics (ONS), the annual inflation rate in May was 2.8%, unchanged from April. Economists had predicted a rise to 3% due to the impact of the Middle East conflict on energy prices.
Grant Fitner, ONS chief economist, said inflation held steady as various price movements offset each other. The main upward pressure came from transport, including air fares, vehicle taxes and petrol prices. These were offset by lower food price inflation, particularly for meat, dairy and vegetables, and a fall in domestic heating oil costs after recent increases.
Raw material costs continued to rise annually, driven by chemicals, while the increase in factory-gate prices slowed, partly due to a drop in domestically produced car prices.
Chancellor Rachel Reeves commented that while the war in the Middle East pushes prices up globally, the government's economic plan is working, with steady inflation. She highlighted cuts in energy bills and freezes on fuel duty and rail fares as measures protecting families and businesses.
Inflation remains above the government's 2% target. The Bank of England is due to set interest rates on Thursday, widely expected to hold them at 3.75% while assessing the conflict's impact.
The closure of the Strait of Hormuz to shipping has driven oil prices up over the past three months, affecting fuel, chemicals and fertiliser costs. Economists hope that the agreement reached between Donald Trump and the Iranian regime earlier this week will reopen the maritime chokepoint, helping to ease price pressures in the coming weeks.
