UK Inflation Holds at 2.8%, Below 3% Forecast

Inflation held at 2.8% in the year to May, a tick below the 3% economists had forecast. The Office for National Statistics said transport costs rose the fastest, while food and non-alcoholic beverage price increases slowed.

The data drops a day before the Bank of England's next rate decision. Economists widely expect the MPC to hold its core rate at 3.75%.

ONS chief economist Grant Fitzner said airfares and vehicle taxes pushed up inflation. Petrol prices also rose. Those increases were offset by lower food prices, with declines across meat and dairy products as well as vegetables, he said. Food is still more expensive than a year ago.

Domestic heating oil, which lacks a price cap, fell after rising sharply due to the Iran war. Many economists expect inflation to peak between 3.5% and 4% in the second half of 2026. The conflict's effects on energy and transport costs will drive that rise.

Chancellor Rachel Reeves said the government was protecting families and businesses from rising costs with cuts in energy bills and freezes on fuel duty and rail fares. "While the war in the Middle East pushes prices up globally, we have got the right economic plan and inflation has held steady," she said.

For markets, the 2.8% print changes little. The pound traded near 1.2700, barely moving. Gilt yields edged down a couple of basis points on the relief of a slightly softer number. The BoE's forward guidance and any updated inflation forecasts will shape the next move in sterling and gilts. The vote split among MPC members matters more than the rate decision itself.

The Monetary Policy Committee delivers its statement at 12:00 BST on Thursday.