U.K. Inflation Eases Slightly in May but Remains Above BoE Target
U.K. inflation slowed marginally in May, according to data released Wednesday, but remains above the Bank of England’s 2% medium-term target ahead of its upcoming policy meeting.
Annual consumer price inflation (CPI) dipped to 3.4% in May from 3.5% in April, slightly above analysts’ expectations of 3.3%. On a monthly basis, CPI rose by 0.2%, down from the sharp 1.2% gain seen in March.
Core CPI—which excludes volatile items like energy and food—also rose 0.2% month-on-month, while the annual rate slipped to 3.5% from April’s 3.8%.
The elevated April figure was partly driven by increased employer costs, such as hikes in the minimum wage and National Insurance contributions. These pressures are expected to gradually ease in the coming months.
“Household budgets remain under pressure,” said Rob Morgan, chief investment analyst at Charles Stanley. “Even though wages have been rising, higher costs for essentials like food, utilities, and mortgages mean most of that income is being spent, not saved.”
Morgan added that while services inflation may stay high in the near term due to employer cost increases, it should ease as hiring slows and pay growth moderates.
Meanwhile, a recent Bank of England survey shows that long-term inflation expectations remain elevated. The public expects inflation five years from now to remain at 3.6%, unchanged from February and the highest level since late 2019.
Expectations for inflation in one to two years also held steady at 3.2%—a peak not seen since November 2022—while one-year expectations eased slightly to 3.2% from 3.4%.
The Bank of England is scheduled to meet Thursday and is widely expected to keep interest rates on hold. In its previous move, the central bank cut the base rate by 25 basis points to 4.25% in early May.
