From Morningstar: 2025-06-18 05:18:00

UK headline inflation rose to 3.4% in May, above the FactSet consensus of 3.3% but lower than April’s 3.5%. A data error last month means April’s figure was overstated by 0.1%. Core inflation, excluding food and energy, rose to 3.5% in May, matching forecasts but below April’s 3.8%. UK inflation remains above target at 2%.

The Bank of England is expected to hold rates until August due to ongoing Middle East conflict, potential tariff impact, and a contracting UK economy. The Bank may consider two rate cuts to 3.75% by year-end due to economic stress and weak growth momentum. Inflation is expected to moderate after April’s spike.

Transport costs, especially airfares, had the biggest influence on UK inflation in May, with transport inflation falling to 0.7% from 3.3% in April. Falling airfares played a significant role. Housing costs also contributed to falling inflation, with a correction made for an April error in vehicle excise duty data.

Food and nonalcoholic beverage prices increased by 4.4% in May, from 3.4% in April, possibly due to supermarkets raising prices to offset the government’s National Insurance employer contributions increase. Bank of England Governor Andrew Bailey expressed concern about this policy in December 2024. Prices of chocolate, confectionery, and ice cream rose the most in May.



Read more at Morningstar: UK Inflation Higher Than Forecast in May