UK inflation remains at 8.7% in May despite hopes of fall as interest rates hike looms

The pressure on households from the rising cost of living did not ease last month with inflation remaining higher than expected.

Consumer Prices Index inflation stayed at 8.7% in May - the same level as in April - despite a predicted fall to 8.4%, latest figures show.

The unchanged figure reflects that people are continuing to face higher costs, and is also likely to put pressure on the Bank of England to raise interest rates further.

Decision-makers at the Bank are due to meet on Thursday (22 June) to set the rates, which could in turn have an impact on mortgage rates which are already at close to 15-year highs. The Bank is tasked with keeping inflation as close to 2% as possible, so when inflation is high interest rates will typically rise.

Liberal Democrat Treasury spokeswoman Sarah Olney said: “These worse-than-expected figures show the government is failing miserably to bring inflation down and provide relief for struggling families facing soaring bills.

“Home-owners now face the likelihood of even more interest rate hikes adding to their monthly mortgage payments, all while the Chancellor just sits on his hands.”

Meanwhile, the Federation of Small Businesses (FSB) pleaded with the Bank to “show moderation” in interest rate rises to combat high inflation.

FSB national chair Martin McTague said: “Today’s rise in core inflation will leave many understandably nervous. The consequences of further interest rate hikes are far from trivial for small businesses. Higher interest rates tighten the purse strings further, stifling the growth and prosperity of our small business sector.

“The potential economic fallout from high interest rates isn’t confined to balance sheets – it will affect every aspect of our society, from employment rates to consumer spending and beyond, so we urge the Bank of England to show moderation.”

The Office for National Statistics (ONS) said the cost of plane tickets, entrance to live music venues, and computer game prices all contributed to the high inflation rate, with these hitting households particularly hard during the month. Meanwhile the price of petrol and diesel fell compared with a year ago.

The ONS added that the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose to 7.9% in May, up from 7.8% in April. The Retail Price Index (RPI), which is used to calculate the rise in train fares among other things, dropped from 11.4% in April to 11.3% in May.

ONS chief economist Grant Fitzner said: “After last month’s fall, annual inflation was little changed in May and remains at a historically high level. The cost of air fares rose by more than a year ago and is at a higher level than usual for May.

“Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high. These were offset by a fall in the cost of petrol. Food price inflation remains high, but the rate has eased slightly this month with costs rising more slowly than this time last year.”

Chancellor Jeremy Hunt said the government’s plan to halve the inflation rate this year is “the best way” to keep costs and interest rates down for families and businesses. He explained: “We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy, while also providing targeted support with the cost of living.”

He added: “If you look at what’s happening in other countries, you can see that rises in interest rates do bring down inflation over time. That will happen here but we need to be patient, we need to stick to the course and then we’ll get to the other side.”

Responding to inflation figures, Labour said food prices in Britain are rising faster than France, Germany and the US, leaving families paying more than £1,000 more per year. Shadow Chancellor Rachel Reeves said: “This Tory government can’t get a grip of this problem because they are the problem.

“13 years of the Tories and their disastrous mini-Budget are damaging our economic security and leaving families worse off. Simply continuing on this Tory path of managed decline is not the summit of Labour’s ambition.

“We need a more secure economy, more secure family finances and a plan to help us grab hold of the opportunities before us. With a relentless focus on the cost of living, our strong fiscal rules and our mission for growth, that is what a Labour government will bring.”