CPI at 3.4%—Is the UK Economy Cooling or Just Catching Its Breath?

The UK’s consumer inflation cooled slightly in May, offering some relief to households and policymakers ahead of the Bank of England’s rate decision. According to the Office for National Statistics, headline CPI rose 0.2% monthonmonth, matching both April’s pace and market expectations. On an annual basis, inflation eased to 3.4%, down from 3.5% in April.

Key Highlights:

Core CPI (excluding energy, food, alcohol, and tobacco) also rose 0.2% monthonmonth, with the annual rate slipping to 3.5% from 3.8% in April
Services inflation remains sticky, driven by higher employer costs and wage pressures
Market expectations were aligned with the data, with no surprises in the monthly figures
BoE’s 2% target remains distant, keeping rate cut hopes in check for now
GBP/USD held steady near 1.3450 after the release, reflecting a muted market reaction

Analysts note that while inflation is gradually easing, the pace is slower than hoped. The Bank of England is widely expected to hold rates steady in its upcoming meeting, with policymakers likely to wait for clearer signs of sustained disinflation before making any moves.

Households, meanwhile, continue to feel the pinch from elevated prices, especially in services and essentials. The data underscores the delicate balancing act facing the BoE as it navigates between inflation control and economic resilience.

Source: FXStreet, Investing.com, Office for National Statistic