UK Inflation Holds Steady at 2.8% in May, Below Expectations
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- UK inflation remained at 2.8% in May, slightly under economists' forecasts of 3%.
- Despite a recent drop, energy prices are expected to rise significantly this summer, potentially impacting future inflation.
- The Bank of England held interest rates at 3.75% and is anticipated to maintain them for now, though a hike is expected by year-end.
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U.K. inflation held at 2.8% in May, slightly below expectations, official figures showed on Wednesday.
Economists polled by Reuters had been expecting the annual inflation rate to rise to 3% in May.
Inflation cooled to 2.8% in April, but the drop — attributed to a change to the U.K.'s regulated energy price cap — was expected to be short-lived. The price cap is due to rise by 13% later this summer, when energy costs will hit a 2-year high.
At its most recent meeting, the Bank of England's Monetary Policy Committee voted to keep its key interest rate at 3.75%.
Policymakers said at the time that "monetary policy cannot influence energy prices" in reference to the impact of the U.S.-Iran war, which has kept oil and gas prices elevated for months amid the closure of the Strait of Hormuz.
Markets are pricing in a 95% chance that the Bank of England holds rates steady at its next meeting on Thursday, LSEG data shows — but traders are expecting the central bank to hike interest rates by the end of this year.
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Correction: This story has been updated to reflect that May inflation hit 2.8%.
