UK INFLATION FORECAST TO RISE TO 3% IN MAY

Economists have predicted that Consumer Price Index inflation in the United Kingdom rose to 3% in May, up from 2.8% in April. The increase reflects higher costs for airfares and vehicle excise duty during the month. Price increases for goods and services are forecast to have accelerated compared with the previous month. The Office of Gas and Electricity Markets maintained its energy price cap at reduced levels, which is expected to have limited inflation growth despite other upward pressures.

Analysts at Pantheon Macroeconomics identified airfares as a significant contributor to the forecast rise. Airlines and holiday firms are predicted to have reversed price discounts offered in April, driving month-on-month inflation higher. Vehicle excise duty is forecast to have added approximately 0.1 percentage points to the inflation rate, following an overstatement of the rise in car duty in April. The conflict in the Middle East continues to place upward pressure on fuel costs and broader price levels.

Inflation is widely expected to continue rising over coming months, with most economists predicting a peak between 3.5% and 4% in the second half of 2026. The Bank of England's April forecasts projected inflation would average around 3.1% in the second quarter and peak at approximately 3.6% under a more benign scenario. Policymakers at the Bank of England are scheduled to vote on interest rates on Thursday, with expectations they will maintain the current rate of 3.75%.