UK inflation holds at 2.8% in May as cheaper food offsets soaring transport costs

UK inflation held steady at 2.8% in the year to May, official figures showed on Wednesday, defying City forecasts that the headline rate would climb back towards 3%. The reading from the Office for National Statistics (ONS) leaves the Consumer Prices Index unchanged from April and still meaningfully above the Bank of England's 2% target.

The flat outcome masks a sharp tug-of-war beneath the surface. The cost of getting around rose at its fastest annual pace in more than three years, pulling the index upwards, while a continued cooling in grocery prices dragged it back down by almost exactly the same amount.

Most economists had pencilled in a modest rise for May, with some forecasts as high as 3.2% on the back of Middle East tensions feeding through to fuel costs. The fact that the rate held instead gives the Bank of England a little more breathing space ahead of its interest rate verdict on Thursday.

Transport costs do the heavy lifting

Transport made the largest upward contribution to the change in the annual rate, with the category rising 6.8% over the year to May, up from 4.5% in April and its highest reading since December 2022. The jump was driven by air fares, motor fuels and sea fares.

Pump prices were a particular sore point. The ONS said petrol reached 157.4 pence per litre, the highest level since November 2022, as instability in the Middle East pushed up the price of crude oil and rattled global energy markets.

Air fares also added to the squeeze, with the timing of the spring bank holiday and half-term inflating the cost of flights compared with a year earlier. Sea fares followed a similar pattern as families locked in summer getaways.

The transport surge is significant because fuel costs ripple through the wider economy, raising the price of moving goods and feeding into everything from supermarket deliveries to the cost of a tradesperson's call-out. Persistently high pump prices can therefore keep inflation elevated well beyond the forecourt.

Food prices keep cooling

Working in the opposite direction, food and non-alcoholic drink prices made the largest downward contribution to the change in the annual rate. Food inflation slowed to 2.2% in May, down from 3.0% in April and the lowest reading since December 2024.

The ONS pointed to small downward effects from meat, dairy products, vegetables and fish. After several years in which the weekly shop has been one of the most painful symbols of the cost-of-living crisis, the slowdown offers households a rare patch of relief at the till.

• Headline CPI: 2.8% in the year to May, unchanged from April
• Core CPI (excluding energy, food, alcohol and tobacco): 2.6%, up from 2.5%
• Services inflation: 3.7%, up from 3.2%
• Food and non-alcoholic drinks: 2.2%, the lowest since December 2024
• Transport: 6.8%, the highest since December 2022

The pick-up in core and services inflation will trouble policymakers more than the headline figure. Services prices, which the Bank watches closely as a gauge of homegrown inflationary pressure, accelerated to 3.7%.

Core inflation, which strips out volatile food and energy prices to reveal the underlying trend, also ticked up to 2.6% from 2.5%. Together, the two measures suggest that domestically generated price pressures have not yet been fully tamed, even as the headline rate stays put.

That distinction matters for households. While a falling grocery bill is welcome, the stubbornness of services inflation, which covers everything from restaurant meals to haircuts and insurance, means many of the costs that families face day to day are still rising at a brisk pace.

“The headline figure may look reassuringly stable, but the detail tells a more complicated story. Services inflation is heading the wrong way, and that is precisely the measure the Bank of England loses sleep over.”

Background

UK inflation peaked above 11% in late 2022 during the energy crisis triggered by Russia's invasion of Ukraine, before falling back towards target through 2024 and 2025. The Bank of England has been gradually loosening policy, with its base rate now sitting at 3.75%.

Even with the recent slowdown, the cumulative effect of the price surge since 2021 continues to weigh on living standards. The average household is estimated to be spending several thousand pounds more a year than before the inflation shock began.

Prices do not fall back when inflation slows; they simply rise more slowly. That distinction is often lost in the public debate, and helps explain why many households feel little relief even as the official rate eases towards target.

What happens next

Attention now turns to the Bank of England's Monetary Policy Committee, which announces its latest rate decision on Thursday. With inflation holding rather than climbing, most economists expect rates to be left on hold at 3.75%, though the firmer services reading and the looming July energy price cap rise mean any talk of further cuts is likely to be cautious.

The coming months will test whether the recent stability proves durable. The July energy price rise will push up bills again, and analysts will be watching closely to see whether the cooling in food prices continues or whether transport costs drag the headline rate higher over the summer.