Air fares contributed to price growth

- Transport inflation hits highest since December 2022 on fuel and airfares
- Factory gate price pressures remain firm, but monthly input costs cool
- BoE seen holding at 3.75% as focus shifts to vote split and guidance

By Harry Daniels
LiveSquawk News
@HarryDaniels71

12:00 GMT | 17 Jun 2026

LONDON – UK inflation held steady in May as oil markets grew more confident that tensions in the Middle East may de-escalate.

Data from the Office for National Statistics showed annual CPI remained at 2.8%, undershooting consensus expectations for a 3.0% rise. On the month, consumer prices rose 0.2%, two-tenths below forecasts and down sharply from April’s 0.7% increase.

“After last month’s slowdown, inflation held steady in May as various price movements offset each other,” said Grant Fitzner, chief economist at the ONS.

Transport was the main driver of price growth, with the category rising 6.8% y/y, up from 4.5% in April, marking its highest level since December 2022. Within the category, airfares, vehicle excise duty and petrol prices all contributed to the increase.

Those gains were partly offset by lower food prices.

Fitzner noted that inflation eased across a range of meat, dairy and vegetable products compared with the previous month, while domestic heating oil prices also fell back after recent increases.

The pound’s reaction to the softer-than-expected data proved short-lived, with sterling recovering its early losses against the euro by mid-morning.

Rabobank senior FX strategist Jane Foley said the data suggested this year’s inflation peak could prove lower than previously expected.

“This speaks to the debate over whether the Bank of England will be willing to extend its ‘wait-and-see’ approach to policy for longer than markets have been expecting,” Foley said.

Raw material costs remained elevated, though there were signs that upstream price pressures may be starting to peak.

PPI input prices rose 8.7% y/y in May, a tenth below forecasts and up from a revised 7.9% in April. On the month, input costs increased 0.2%, undershooting expectations for a 0.5% rise and slowing sharply from April’s revised 2.6%.

The ONS said crude oil and refined petroleum products made the largest upward contributions to annual input and output inflation, respectively.

“The annual cost of raw materials continued to increase, led by rises in chemical prices, while the increase in the cost of goods leaving factories slowed, partly due to a drop in the price of domestically produced cars,” Fitzner said.

It is a busy week for UK investors, with labour market data due on Thursday morning, followed by the Bank of England’s rate decision at 11:00 GMT.

Markets widely expect the Bank’s Monetary Policy Committee to leave rates unchanged at 3.75%.

With the outcome largely seen as a done deal, Foley said attention will instead centre on the minutes and voting split for signals on whether policymakers may still be able to avoid another rate hike this year.

“That said, even policy doves may conclude that, in order to avoid an official rate hike, market rates may need to stay elevated for now. This raises the risk that the Bank continues to talk tough over the summer.”