UK inflation unexpectedly held steady in May, official figures showed on Tuesday, as higher transport costs offset a slowdown in food price rises. The consumer prices index (CPI) remained at 8.7% in the year to May, defying expectations of a fall to 8.4%.
Transport Costs Drive Inflation
The Office for National Statistics (ONS) said rising prices for petrol and diesel, along with increased air fares, pushed up transport costs. This counterbalanced a slowdown in food price inflation, which eased from 19% to 18.3%.
Bank of England Under Pressure
The stubbornly high inflation figure puts pressure on the Bank of England to raise interest rates further. Financial markets now expect the bank to hike rates to 5.5% by the end of the year, up from 4.5% currently.
Core inflation, which excludes volatile food and energy prices, rose to 7.1% from 6.8%, the highest since 1992. Services inflation also increased, driven by higher rents and package holiday costs.
Impact on Households
Households continue to face a cost of living crisis, with wages failing to keep pace with inflation. Real wages fell by 2.4% in the three months to April, according to separate data.
The government is under pressure to provide more support, but Chancellor Jeremy Hunt said the best way to help families is to stick to the plan to halve inflation by the end of the year.
Global Context
The UK is not alone in facing persistent inflation. The US Federal Reserve held interest rates steady last week but signaled further hikes ahead. The European Central Bank raised rates to 3.5% last week.
Oil prices have been volatile due to the war in Ukraine and tensions in the Middle East, adding to global inflationary pressures.
Analysts expect the Bank of England to raise rates by 0.25 percentage points to 4.75% at its next meeting in June, with further increases likely later in the year.
