UK Inflation Holds at Highest Level in More Than a Year

Commuters cross London Bridge, as they make their way to work in London, UK, on Monday, June 2, 2025. At least 10% of the UK's wealthy non-dom population have left the country following tighter tax rules introduced by Prime Minister Keir Starmer's Labour government, according to a new report authored by a former Treasury economist. Photographer: Jason Alden/Bloomberg Photo by Jason Alden /Bloomberg

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(Bloomberg) — UK inflation remained at its highest level in over a year, keeping price pressures uncomfortably high as the Bank of England prepares to give its latest signal on whether it will carry on cutting interest rates amid the threat of another energy price spike.

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Consumer price inflation was 3.4% in May, slightly above economists’ expectations for 3.3% and in line with BOE forecasts, the Office for National Statistics said Wednesday. Services inflation — which is being closely watched for signs of domestic pressures — eased to 4.7% from 5.4%. 

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Inflation in April is officially recorded as 3.5%, as stated a month ago, but the statistics body acknowledged on June 5 it had uncovered a mistake and the rate should have been 3.4%. The error was blamed on incorrect vehicle excise duty numbers from the government. 

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ONS acting Chief Economist Richard Heys said air fares and fuel costs fell but that was offset by rising food prices, particularly chocolates and meat, as well as furniture and household goods, including fridge freezers and vacuum cleaners.

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The pound extended gains after the data, up 0.3% on the day to reach an intraday high of $1.3462. As of Tuesday, markets almost fully priced in two more quarter-point rate cuts from the Bank of England this year.

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It leaves inflation stubbornly high with investors still unsure about when the UK central bank will next cut interest rates. Officials are contending with a cooling economy and labor market against stubborn services inflation and rising oil prices after the escalation in tensions in the Middle East.

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The conflict between Israel and Iran risks complicating upcoming BOE decisions with oil prices up around 14% compared to a week ago. While investors and economists believe a rate cut tomorrow is unlikely, the BOE is likely to keep the door open to another move at its August meeting.

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—With assistance from Aline Oyamada, Harumi Ichikura and Joel Rinneby.

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