UK inflation rate remains unchanged at 2.8% despite soaring air fares
According to the latest figures from the Office for National Statistics (ONS), the UK’s inflation rate remained at 2.8 per cent until May.
This was despite airfares rising and motor fuel rising as oil prices rose, with transport prices making the biggest contribution to monthly inflation figures, up 6.8 per cent – the highest annual rate increase recorded for the sector since December 2022.
The ONS said flight tickets alone rose by 10.3 per cent between April and May this year, with the timing of Easter and school holidays also a factor.
In better news for consumers, prices of food and non-alcoholic beverages fell between April and May this year, rising more slowly on a 12-month basis than previously, making them the biggest contributor to the decline.
The figures came as a surprise to most economists, who had expected data to rise to 3 percent, or perhaps even higher, after first falling to today’s level in April.
This is also likely to give the Bank of England extra confidence to keep interest rates at 3.75 per cent in the vote on Thursday.
ONS Chief Economist Grant Fitzner said: “A range of meat, dairy and vegetable products [contributed to decreasing inflation] The cost of domestic heating oil, which increased rapidly in the first weeks of the Iran war, also dropped significantly compared to last month.
“After last month’s slowdown, inflation remained stable in May as various price movements offset each other,” he said. “The real upward movement came from transportation; flight tickets, vehicle taxes and oil prices are pushing inflation up.
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“While the annual cost of raw materials continues to rise due to increases in the cost of chemicals, the increase in the cost of goods leaving factories has also slowed down, partly due to the decline in the cost of domestically produced automobiles.”
Rachel Reeves said holding inflation showed Labor had the “right plan” to move the country forward on solid foundations.
“While the war in the Middle East is driving up prices globally, we have the right economic plan and inflation remains stable,” the Chancellor said.
“We are protecting families and businesses from rising costs through cuts to energy bills and a freeze on fuel duties and rail fares. This is the right economic plan to build a stronger, safer Britain.”
Keeping inflation at this level will give some hope that the contraction in the cost of living will not be as bad as expected in the first half of the year, after the Iran war led to a spiraling rise in energy costs.
But Quilter investment strategist Lindsay James said some knock-on effects will continue to be felt as food production continues to face pressures.
“Inflation surprisingly managed to stay at the same rate after falling below 3 percent last month, surprising the market that had been expecting it to recover.” he said.
“Although the war in the Middle East is over for now and the so-called normalization has continued, inflation has managed to remain stable, although it is unlikely that it will suddenly start falling for several months. As a result, today’s figure is a pleasant surprise.”
“Looking ahead, the picture looks more complex. The energy price cap will increase by 13 percent from July as a result of rising oil and gas prices, so the benefits of the US-Iran decision will not be felt immediately.”
“In fact, food prices are likely to see a greater impact from higher production costs as the cost and availability of fertilizer, energy and transportation remain limited until the Strait of Hormuz is fully reopened. Meanwhile, there are growing concerns that we are increasingly likely to see the strongest El Niño weather system on record in the coming months, with the potential to devastate crops and harvests.”
With prices expected to continue rising into late 2026, financial experts continue to warn savers to make sure their cash is earning an interest rate well above the rate of inflation.
Nottingham Building Society’s chief savings officer, Harriet Guevara, said: “It is welcome that today’s inflation figure remains steady, but no one should take this as the start of a trend. Last month’s decline was largely due to base effects and lower energy costs that predate the conflict in the Middle East. With a higher energy price cap approaching and fuel costs already climbing, most forecasters expect inflation to rise above 3 per cent in the coming months and potentially approach 4 per cent by the end of the year.
“This should be a wake-up call for anyone who has savings in a low-interest current account or an old savings product they haven’t looked at in a while.
“Inflation doesn’t need to reach the peaks we’re seeing in 2022 to quietly eat away at the value of your money, and cash that doesn’t provide competitive returns is losing value in real terms.”
Businesses are under pressure to keep prices low for end customers while trying to cover costs across the board.
“Manufacturer input costs, including transport, packaging and energy, are rising and we expect food inflation to rise this year and next,” said Karen Betts, CEO of the Food and Drink Federation.
“With businesses also facing political uncertainty and high employment costs, it is vital that the government refocuses on its growth mission, whatever the outcome of any leadership contest,” BusinessLDN said in a statement, while the British Retail Consortium called on the government to “reduce non-commodity charges that lead to high energy bills and give retailers breathing room to deliver savings to their customers.”
