British consumer price inflation held steady at 2.8 per cent in May, confounding forecasts of a sharp uptick and remaining at the 13-month low first recorded in April. The reading, published by the Office for National Statistics a day before the Bank of England’s latest interest rate decision, prompted a modest weakening of sterling and pushed gilt yields to a fresh two-month trough. Money markets marginally trimmed bets on further monetary tightening later this year, reflecting a collective reassessment after the BoE itself had projected a rise to 3.3 per cent and a Reuters poll of economists pointed to 3.0 per cent.

The flat headline masked considerable churn beneath the surface. Transport costs emerged as the dominant inflationary force, with the sector registering an annual increase of 6.8 per cent — the steepest since December 2022. Air fares surged 10.3 per cent between April and May, partly amplified by the timing of Easter and school holidays, while motor fuel and vehicle excise duty also climbed. Yet these pressures were neatly counterbalanced by easing food prices: meat, vegetables, dairy products and domestic heating fuels all fell compared with the previous month. ONS chief economist Grant Fitzner noted that ‘various price movements offset each other,’ keeping the overall index unchanged.

Viewed from London, the data offered a rare moment of relief for households and policymakers alike, though the geopolitical backdrop remains fraught. British finance minister Rachel Reeves acknowledged that the Middle East conflict — widely understood to involve military action against Iran — was driving up energy costs globally, but stressed that domestic inflation had not accelerated as feared. Russian financial analysts, observing the same figures, highlighted how the Iran-linked surge in energy prices was compensated by slowing food inflation, a dynamic that prevented the expected breach of the 3 per cent threshold. Middle Eastern business commentary underscored the conflict’s role in keeping UK inflation nearly a full percentage point above the BoE’s February forecast, a reminder of the economy’s exposure to oil supply disruptions.

Looking ahead, the reprieve may prove temporary. Most economists caution that inflation is still on a rising trajectory, with energy base effects and persistent geopolitical risk likely to push the rate higher in the coming months. The Bank of England’s rate-setters, who have signalled a cautious approach, will weigh this month’s downside surprise against the medium-term outlook when they announce their decision. For British consumers, the immediate picture is mixed: cheaper food and heating offer some cushion, but transport costs continue to climb, and the shadow of the Middle East conflict leaves the path of prices — and interest rates — unusually uncertain.