UK inflation stays steady at 2.8% despite Iran conflict driving up fuel prices

Flatlining figure confounds forecasts of an increase to 3% as Bank of England prepares to set interest ratesUK inflation unexpectedly remained at 2.8% last month as higher transport and fuel costs were offset by slower food price rises, official figures have shown.May’s annual price rise reading recorded by the Office for National Statistics came despite the feared impact of the Middle East conflict on energy prices and confounded economists’ forecasts of a rise to 3%.The flatlining figure came after a decline in the consumer prices index to 2.8% in April, as cuts to domestic energy bills announced by Rachel Reeves at last year’s budget took effect.Grant Fitner, chief economist at the ONS, said: “Inflation held steady in May as various price movements offset each other. The main upward movement came from transport, with air fares, vehicle taxes and petrol prices all pushing up inflation.“These were offset by lower food prices, with decreases in inflation seen across a range of meat, dairy and vegetable items compared to last month, as well as the cost of domestic heating oil, which fell back after climbing in recent months.“The annual cost of raw materials continued to increase, led by rises in the cost of chemicals, while the increase in the cost of goods leaving factories slowed, partly due to a drop in the cost of domestically produced cars.”The reading is still above the government’s 2% target for Bank of England policymakers, who are preparing to set interest rates on Thursday. They are widely expected to leave borrowing costs on hold at 3.75% for now, as they assess the impact of the conflict.The closure of the strait of Hormuz to shipping has driven up oil prices over the past three months, with knock-on effects for the cost of fuel products, chemicals and fertiliser.Economists hope the agreement reached between Donald Trump and the Iranian regime at the start of the week will reopen the maritime choke point in the coming weeks, helping to ease price pressures.