By David Milliken and Suban Abdulla
LONDON, June 17 (Reuters) – British inflation unexpectedly held at 2.8% for May, unchanged from the 13-month low reached in April, official figures showed on Wednesday, a day before the Bank of England will announce its next interest rate decision.
Sterling weakened a little against the U.S. dollar after the data and investors slightly trimmed their expectations for a rate rise later this year.
Economists polled by Reuters had forecast a rise to 3.0% for May, as the U.S.-Iran war kept British inflation almost a percentage point higher than the BoE had forecast in February.
Lower prices than in April for meat, vegetables and dairy products as well as domestic heating oil helped offset a jump in airfares and petrol, the Office for National Statistics said.
UK INFLATION HAS LONG BEEN ABOVE TARGET
Inflation has been above the BoE’s 2% target for most of the past five years. In April, the BoE said it was likely to rise above 3.5% by the end of the year and potentially exceed 6% early next year under the most adverse of three scenarios.
However, financial markets this week have drawn comfort from an interim agreement between the U.S. and Iran which promises to reopen the Strait of Hormuz, a major corridor for oil exports, and is due to be signed in Switzerland on Friday.
“Today’s data strengthens the case for a continued cautious approach from the Bank of England,” Yael Selfin, chief economist at KPMG, said.
“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.
Economists polled by Reuters expect the BoE’s Monetary Policy Committee to vote 7-2 to keep rates on hold at 3.75%.
While Governor Andrew Bailey says the BoE has time to wait to assess the impact of the conflict, some policymakers worry businesses will use it to raise prices more broadly, or that it could dent households’ confidence in the BoE inflation target.
VOLATILE AIRFARES
Britain has been more affected than most Western countries by the conflict due to its reliance on imported natural gas and manufacturers reported an 8.7% annual rise in their raw material costs for May, the biggest since February 2023.
Services price inflation – which the BoE views as a guide to underlying price pressures – rose to 3.7% in May from 3.2% in April, in line with economists’ forecasts.
The rise in services inflation partly reflected a 10.3% monthly jump in airfares, which are volatile. High Easter prices were not captured in April 2026 data but were in 2025.
Core inflation, which excludes food, energy, alcohol and tobacco prices, rose slightly less than expected to 2.6% from 2.5%.
(Reporting by David Milliken; Editing by Alison Williams)
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