Inflation stays stuck at 8.7%

The current rate of inflation has seen no change at 8.7% in May, the same rate it was in April, despite expectations of a fall

Max Austin, Reporter, Accountancy Daily

According to the Office for National Statistics (ONS), the UK saw no change in the rate of inflation last month, despite economists predicting a slight decrease to 8.4%.

The prices for flights and second-hand vehicles resulted in the unexpected figure, on top of the cost of food and energy, which continues to hit UK households hard.

Food and non-alcoholic drink prices rose by 18.4% in the year to May, down from 19.1% in April and from 19.2% in March, which was the highest annual rate seen for over 45 years.

The slowing in the annual rate for food and non-alcoholic beverages was driven by relatively small price movements from milk, cheese and eggs, with the annual rate easing to 27.9%, from 29.3% in April.

Grant Fitzner, ONS chief economist, said: ‘After last month’s fall, annual inflation was little changed in May and remains at a historically high level. The cost of airfares rose by more than a year ago and is at a higher level than usual for May.

‘Rising prices for second-hand cars, live music events and computer games also contribute to inflation remaining high. These were offset by a fall in the cost of petrol. Food price inflation remains high, but the rate has eased slightly this month with costs rising more slowly than this time last year.’

The annual rate for transport eased slightly from 1.6% in April to 1.3% in May – continuing the broadly downward trend in the rate seen since June 2022, when it peaked at 15.2%.

This overall slowdown came from a downward effect from petrol and diesel which was offset by rises in airfares and second-hand cars. The price of new cars, and maintenance and repairs, also fell slightly.

Overall, petrol and diesel fell by 13.1% in the year to May, compared with a fall of 8.9% in April. Average petrol and diesel prices stood at 144.4 and 154.6 pence per litre, respectively.

The Bank of England (BoE) is expected to raise interest rates by 0.25% to 4.75% as it continues with its strategy to cut inflation.

Jack Finney, an economist at PwC, said: ‘UK inflation has once again come in higher than expected at 8.7% in May. This is higher than the 8.5% consensus and the Bank of England’s forecast of 8.3% in May. More troublingly, core CPI – which is considered to be indicative of underlying inflation pressures – unexpectedly increased to 7.1%.

‘The primary culprit for the higher headline figure was services inflation, which increased from 6.9% to 7.4% due to upward pressure from cultural services. It now seems likely that services inflation will take longer to come down than the time it took to come up, especially with wage growth remaining strong.’