UK inflation holds steady at 2.8% in May
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- UK inflation held at 2.8% in May, below the 3% rate economists polled by Reuters had forecast for the month
- The Office for National Statistics identified transport as the biggest contributor to rising prices, with air fares up 10.3% month-on-month and motor fuel and sea fares also lifting costs — though falling food and non-alcoholic drink prices partially offset those gains
- April's cooldown to 2.8% had been attributed to a change in the UK's regulated energy price cap, which is set to rise 13% later this summer when energy costs hit a two-year high
- Gasoline prices rose 0.6 pence per liter between April and May, reaching their highest level since November 2022, when energy prices spiked in the wake of Russia's full-scale invasion of Ukraine
- The Bank of England held its key rate at 3.75% at its most recent meeting, and LSEG data shows markets are pricing a 95% chance policymakers hold steady Thursday — though traders expect a hike by year-end
- The UK's May reading came in below the euro zone's 3.2% and well below the US's 4.2% rate for the same month
- Scott Gardner, investment strategist at J.P. Morgan Personal Investing, said the data "will provide some hope that any rebound in U.K. inflation could be short-lived"
Why it matters: With the Ofgem energy cap set to rise 13% this summer, the 2.8% print may be the last calm reading before price pressures re-intensify. The 95%-priced rate hold gives the Bank of England cover to stay sidelined through Thursday while the US-Iran framework deal and its effect on oil and gas markets play out.
