Inflation remains at 2.8%, slightly lower than expected

Inflation remained at 2.8% in the year to May as the pace of food price rises slowed to a 17-month low. according to new figures.

Over the year to May, transport costs rose by the fastest rate, the Office for National Statistics (ONS) said, while the rate of price increases in meat, dairy. vegetables eased.

Experts had expected inflation— the rate at which the cost of goods. services is rising — to rise to 3% in May, and were widely expecting it to steadily increasing over the coming months due to the ongoing impact of the war in the Middle East.

But the peace deal agreed between the US and Iran means further increases could be smaller, according to analysts.

Grant Fitzner, the ONS's chief economist, said that airfares, vehicle taxes and petrol prices all pushed up inflation.

Motor fuels were 24.6% higher in May than the same last year, according to ONS figures. Overall transport inflation was 6.8%, the highest annual rate since December 2022.

But that was "offset by lower food prices, with decreases in inflation seen across a range of meat, dairy. vegetable items compared to last month", Fitzner said.

Food inflation fell from 3% in the year to April to2.2% in the year to May. the slowest rate of food inflation since December 2024.

The British Retail Consortium (BRC) said easing food inflation showed that the British supermarket sector was highly competitive.

However. Harvir Dhillon, a BRC economist, said that "it will likely pick up over the coming months as input costs rise, following the conflict in Iran."

Domestic heating oil —. does not have a price cap like energy bills — also fell after rising sharply due to the war.

Chancellor Rachel Reeves said the government was "protecting families. businesses from rising costs, with cuts in energy bills and freezes in fuel duty and rail fares".

"While the war in the Middle East pushes prices up globally, we have got the right economic plan. inflation has held steady."

The inflation figures come ahead of the Bank of England's next interest rate decision on Thursday. Economists widely expect the Bank to hold the core interest rate at its current level of 3.75%.

Many economists had predicted inflation would peak at between 3.5%. 4% in the second half of 2026, as the effects of the conflict in the Middle East filter down to household costs.

The good news of slower food inflation has already been "somewhat surpassed" by the prospect of price rises slowing even further due to a US-Iran peace deal, according to Suren Thiru, chief economist at the Institute of Chartered Accountants in England. Wales.

"Although the US-Iran peace deal has arrived too late to stop higher energy bills. food costs triggering a summer inflation spike, if oil prices continue sinking then a peak well below 4% is becoming increasingly plausible," he said.

"Even with hostilities seemingly over, the UK faces a painful hangover from the Iran conflict, with energy. other supply chains likely to take months to normalise, delaying any meaningful easing in inflation until late 2026".

Yael Selfin. chief economist at KPMG UK, said the new figures "strengthen the case" for a hold on interest rates by the Bank of England on Thursday.

"Underlying inflationary pressures have yet to show clear signs of strengthening. which is likely to underpin a majority decision within the Monetary Policy Committee to hold interest rates at Thursday's meeting," she said.

"Motorists have been squeezed by higher petrol prices since March. however this now looks set to reverse as energy prices ease amid progress towards reopening the Strait of Hormuz.

"Nonetheless. the adverse impacts of the disruption to energy supplies are already in the pipeline, with household energy bills set to rise by 13% from next month."