Key facts
- UK inflation held at 2.8% in May, unchanged from April's 13-month low.
- Economists and the Bank of England had forecast higher inflation for May.
- Services price inflation increased to 3.7% in May.
- Core inflation rose to 2.6% in May.
- The Bank of England is expected to hold interest rates at 3.75%.
British inflation held unexpectedly steady at 2.8% in May, unchanged from April's 13-month low and below forecasts from economists and the Bank of England. The figures were released a day before the central bank's next interest rate decision.
Sterling weakened slightly against the U.S. dollar following the data, while British government bond yields fell to a new two-month low. Investors also slightly trimmed their expectations for a rate increase later this year.
Economists polled by Reuters had predicted inflation would rise to 3.0% in May, and the BoE had forecast an increase to 3.3%. Lower prices for meat, vegetables, dairy products, and domestic heating oil helped offset a jump in airfares and petrol prices, according to the Office for National Statistics.
Services price inflation, a key indicator for underlying price pressures, rose to 3.7% in May from 3.2% in April, in line with economists' forecasts. Core inflation, excluding food, energy, alcohol, and tobacco, increased slightly to 2.6% from 2.5%.
The Bank of England is widely expected to keep its base interest rate at 3.75%. Governor Andrew Bailey has indicated the BoE has time to assess the impact of recent geopolitical events on inflation, though some policymakers worry about broader price increases and a dent in household confidence in the inflation target.
Financial markets have drawn some comfort from an interim agreement between the U.S. and Iran that could lead to the reopening of the Strait of Hormuz, a major oil export corridor. Britain has been particularly affected by the conflict due to its reliance on imported natural gas.