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Banks (Finance)

UK Inflation Remains Unchanged, Interest Rates to Be Kept on Hold

Strategic Insights

— 2 min read

The Consumer Prices Index (CPI) rose 0.2% month-on-month in May, according to figures from the Office for National Statistics, remaining unchanged from the previous month's inflation rate. Despite the slight increase, the annual CPI inflation rate remained at 3.4%, still above the Bank of England's 2% target. The Office for National Statistics (ONS) corrected an initial statement that CPI had eased from 3.5% in April to 3.4%, instead confirming that it had remained at 3.4%. Core CPI, which excludes more volatile prices, fell to 3.5% from 3.8%, while Services CPI softened to 4.7% from 5.4%.

Key Takeaways:

  • The Consumer Prices Index (CPI) rose 0.2% month-on-month in May, remaining unchanged from the previous month's inflation rate.
  • The annual CPI inflation rate remained at 3.4%, still above the Bank of England's 2% target.
  • Core CPI fell to 3.5% from 3.8%, and Services CPI softened to 4.7% from 5.4%.
  • The ONS corrected an initial statement that CPI had eased from 3.5% in April to 3.4%, confirming it remained at 3.4%.
  • Several economists forecast the Bank of England's Monetary Policy Committee to keep interest rates on hold at its meeting on Thursday, citing the uncertainty caused by the intensifying conflict between Israel and Iran.
  • The escalating conflict between Israel and Iran may lead to higher oil prices, which could further disrupt energy flows and drive up prices across the board.
  • Economists, including Raj Badiani of S&P Global Market Intelligence and Monica George Michail of the National Institute of Economic and Social Research, predict the timing of the next interest rate cut is uncertain, with some expecting it to be delayed until November or early 2026.
  • Matt Swannell, chief economic advisor to the EY ITEM Club, expects headline inflation to edge upwards over the next few months, while Nicholas Hyett, investment manager at Wealth Club, notes that the price of Brent crude oil has moved sharply higher, disrupting energy flows and increasing the inflationary risk.

Statistics:

  • Consumer Prices Index (CPI): rose 0.2% month-on-month in May, remaining unchanged from the previous month's inflation rate.
  • Annual CPI inflation rate: remained at 3.4% for a second month.
  • Core CPI: fell to 3.5% from 3.8%.
  • Services CPI: softened to 4.7% from 5.4%.
  • Bank of England's 2% inflation target: still above the target rate.
  • Market expectation of a rate cut by the MPC: climbed to 12%.

Sources:

  • Office for National Statistics (ONS)
  • Acting chief economist Richard Heys (ONS)
  • Danni Hewson, AJ Bell head of financial analysis
  • Raj Badiani, economics director at S&P Global Market Intelligence
  • Monica George Michail, associate economist at NIESR
  • Matt Swannell, chief economic advisor to the EY ITEM Club
  • Nicholas Hyett, investment manager at Wealth Club

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