Inflation Falls but Technically Holds at 3.4% pa

The Office for National Statistics (ONS) has this morning release UK inflation figures for May 2025.

After last month’s 0.9% climb to 3.5% pa (ONS figures), figures for May, published today, show that Consumer Prices Index (CPI) fell by just 0.1% to 3.4% pa.  This is not a surprise give the impact of massive employer national insurance increases and huge national minimum wage increases for all, with employees below age 21, getting minimum wage increases in a year of between 16% and 18% and over 2 years, staggering increases of nearly 43%.  Even for over 21s, minimum wages have increased by over 33% in 2 years. These increases started in April, so we suggest the impact will be sustained for a period.

That said, the ONS said its April figure was incorrect and should have been 3.4%, rather than 3.5%, so CPI technically remains unchanged.

In addition, Trump tariffs are still to make an impact.  Yes, the UK and US have reached a tariff deal but that will not stop prices rising globally as tariffs hit other countries and the UK still buys goods and services from Europe and the Far East.  In addition, oil prices are increasing that will hit all goods and services as transport/cargo costs increase.

• December 2024 – CPI fell by 0.1% to 2.5% pa.
• January 2025 – CPI climbed 0.5% to 3.0% pa.
• February 2025 – CPI fell by 0.2% to 2.8% pa.
• March 2025 – CPI fell again by 0.2% to 2.6% pa.
• April 2025  – CPI climbed a massive 0.9% pa to 3.5% pa.
• May 2025 – CPI 'fell' 0.1% to 3.5% pa.

Inflation is back to where it was just under 18 months, and we can see no respite.

The main contributors to price rises were:

• Housing and household services (mainly due to the 6.4 per cent rise in Ofgem’s energy price cap in April).
• Education.
• Alcohol and tobacco.
• Communication.
• Food and non-alcoholic beverages.

Downward pressure came from:

• Clothing and footwear was the only sector with prices falling over the last 12 months.

RPI Falls 0.2% pa to 4.3% pa

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation and is still at late 2023/early 2024 figures.  We cannot see this improving in the short term.

Comment

We suggested 2 months ago that the Bank of England would cut interest rates, and they did.  We have also suggested the Bank of England was unlikely to cut rates again in June and this 2^nd month of higher inflation all but ‘kills off’ any hope of another rate cut tomorrow.  We do not expect the Bank of England to cut rates again until after late in the summer.

Key dates for us all:

• Next Bank of England MPC interest rate decision tomorrow (19 June 2025).
• Next ONS inflation report 16 July 2025.