UK inflation eases by less than anticipated ahead of Bank of England rate decision

Key Points

• UK inflation eased to 3.4% in May from 3.5% in April but remained well above the Bank of England’s 2% target and fell by less than the expected 3.3%.
• Food and non‐alcoholic drink prices rose by 4.4%, with sugar, jam, chocolate, ice cream and meat leading increases that offset lower air fares and transport costs.
• The Bank of England’s Monetary Policy Committee is widely expected to keep its main interest rate at 4.25% on Thursday after cutting rates quarterly since last August.
• Economists warn inflation may stay above target for the rest of the year amid uncertainty over U.S. tariff policy and Middle East tensions, complicating the outlook for future rate moves.

LONDON (AP) — Inflation in the U.K. dropped modestly in May as a drop in air fares and transport costs were largely offset by rising food prices, particularly chocolate, official figures showed Wednesday.

The Office of National Statistics said consumer prices rose by 3.4% in the year to May, down from 3.5% the previous month.

That means inflation remains substantially above the Bank of England's target rate of 2%. The bank's rate-setting Monetary Policy Committee is due to announce its latest interest rate decision on Thursday. Most economists expect the nine-member panel, which has cut borrowing rates on a quarterly basis since last August, to keep its main interest rate at 4.25%.

The decline was less than expected. Most economists were expecting the rate to come in at 3.3% for May as price rises cooled, following a raft of bill increases the previous month that pushed inflation to the highest level in more than a year.

The higher-than-anticipated outcome was largely due to a 4.4% increase in food and non-alcoholic drink prices. Larder items like sugar, jam and chocolate, as well as ice cream, saw the biggest monthly price hikes, while meat costs also rose.

Economists, including those at the Bank of England, expect inflation to remain above target over the rest of the year. Uncertainty over U.S. President Donald Trump's tariff agenda and the unrest in the Middle East make it difficult to forecast economic developments and the path of interest rates.

“We are sticking with our call for the Bank of England to continue to reduce rates at a quarterly cadence,” said Felix Feather, economist at asset management firm Aberdeen. "But geopolitical uncertainty and risks from U.S. trade policy raise both upside and downside risks to this forecast.”