Uk Inflation Rate Holds at 2.8% as Transport Costs Rise
Uk inflation rate held at 2.8% in the latest reading, as higher transport costs were offset by slower food price rises. For households and rate traders, that leaves prices firmer than hoped but still below the 4% level economists say would raise concern about second-round effects.
Food Prices Stay Benign
2.8% was enough to surprise economists because food inflation cooled at the same time. Food prices rose at their slowest rate since December 2024, while inflation for meat, cheese and vegetables declined. James Smith, a developed markets economist at ING, said, “What’s striking about these latest figures is just how benign food inflation is right now,” and added, “It’s a key reason why headline CPI unexpectedly stayed at 2.8%, despite upward pressure from air fares and a quirk related to road tax.”
May brought an outright fall in food prices relative to April, and Smith said the latest producer price data points to another sharp drop in food inflation over the next couple of months. That points to a narrower squeeze on supermarket bills even as transport costs kept headline inflation from easing further.
Bank Of England Tomorrow
4% remains the threshold Smith highlighted as the level below which he expects inflation to stay, even after a 13% rise in household energy bills this July pushes the rate toward 3.5% by September. He said, “we think the Bank of England is set for a prolonged pause.”
7-2 is the vote Smith expects at the Bank of England meeting tomorrow, with no change in interest rates preferred by most policymakers. Financial markets are pricing in a 2.6% chance of an interest rate hike tomorrow, leaving the bigger policy move outside this meeting.
ING’s 2027 View
2027 is the year Smith expects a return to rate cuts, which pushes any relief for borrowers further out than the next policy decision. If food inflation keeps slowing as producer prices suggest, the current 2.8% reading leaves the Bank of England with room to wait rather than move on a single data point.
