UK Inflation Holds Steady at 2.8% Amid Sectoral Shifts

The United Kingdom's Consumer Price Index (CPI) unexpectedly remained at 2.8% in May, defying expectations for a decline. This stability was primarily driven by a counterbalancing act between rising transport costs and a significant deceleration in food price inflation. Food prices recorded their slowest annual increase since December 2024, with notable declines in the inflation rates for meat, cheese, and vegetables. Conversely, upward pressure on the headline CPI came from increased airfares and a specific adjustment in road tax. Despite these factors, the overall food price index saw a month-on-month decline in May, a trend mirrored across the Eurozone and Eastern Europe. Producer price data suggests this downward trajectory in food inflation is likely to continue in the coming months, though the full impact of prior energy price spikes on food costs may not materialize until early next year. In the housing sector, official figures indicate an uptick in UK house price inflation, while the annual growth rate of private rents has slowed. Average monthly private rents rose by 3.3% year-on-year to £1,383 in May, a decrease from the 3.5% recorded in April. Services inflation exhibited volatility, partly influenced by the timing of Easter; however, the Bank of England's preferred 'core services' measure, which excludes more volatile components, has shown greater stability, remaining just below 4%. Surveys of CFOs suggest services inflation is expected to maintain current levels through the summer months, with limited immediate impact from broader geopolitical events beyond fuel prices.