UK INFLATION HOLDS AT 2.8% AS FOOD PRICES OFFSET TRANSPORT COSTS

UK inflation remained at 2.8% in May, confounding economists' forecasts of a rise to 3%, according to figures released by the Office for National Statistics. The annual price rise reading came despite concerns that the Middle East conflict would push energy prices higher. Transport costs, including air fares, vehicle taxes and petrol prices, drove inflation upwards during the month, whilst lower food prices provided a counterbalance.

Food price rises slowed significantly across meat, dairy and vegetable items compared to April. The cost of domestic heating oil also fell back after climbing in recent months. Grant Fitner, chief economist at the ONS, noted that various price movements offset each other, with raw material costs continuing to increase, led by rises in chemical prices. The increase in the cost of goods leaving factories slowed partly due to a drop in domestically produced car costs.

The May figure follows a decline in the consumer prices index to 2.8% in April, when cuts to domestic energy bills took effect. The reading remains above the government's 2% inflation target for Bank of England policymakers, who were preparing to set interest rates on Thursday. Rachel Reeves, the chancellor, stated that the government's economic plan had helped hold inflation steady whilst protecting families and businesses from rising costs.