UK inflation held at 2.8% in the year to May, the Office for National Statistics said Wednesday, surprising economists who had expected a rise to 3% driven by the effects of the war in the Middle East. The reading keeps the consumer price index above the Bank of England’s 2% target but well below the 11.1% peak recorded in October 2022.
The ONS reported that food price inflation fell sharply, dropping from 3% in the year to April to 2.2% in the year to May. The Agriculture and Horticulture Development Board said British households are struggling to afford beef, reducing demand, while an oversupply of heavier cattle has pushed prices lower. The ONS said beef and veal prices rose 9.3% in May, a marked slowdown from monthly increases of as much as 27% earlier in the year.
The recent peace agreement between the US and Iran has led to a fall in oil prices, which economists say may keep inflation lower than previously forecast. In April, the Bank of England warned that inflation could go as high as 6% in a worst-case scenario driven by the Middle East conflict. The same month, the Monetary Policy Committee voted 8-1 to hold the base rate at 3.75%, indicating it would act “forcefully” if oil prices did not start to fall.
Analysts have cautioned that if the deal collapses, oil prices may rebound, pushing inflation higher. The Food and Drink Federation, which represents manufacturers, said current food prices do not yet reflect the impact of the Strait of Hormuz closure and that food inflation is likely to rise this year and into 2027.
The Bank of England is due to announce its latest interest rate decision on Thursday. Experts expect it to hold the base rate at 3.75%, the lowest level since early 2023 after six cuts beginning in August 2024. The most recent cut in December 2025 reflected concerns over rising unemployment and weak economic growth, with policymakers voting 5-4 in favor of a cut.
Regular pay growth excluding bonuses fell to 3.4% in the three months to March, down from 3.6% in December to February, the ONS said. After accounting for inflation, real regular pay grew by just 0.1%.