Moreover, in May, consumer prices rose by 0.3% month-on-month, following a 0.3% increase in April. Economists expected consumer prices to increase by 0.4%.
According to the Office for National Statistics, several key trends emerged:
The Consumer Prices Index, including owner-occupier housing costs (CPIH), increased by 2.8% in 12 months to May (April: +3.0%).
- Food prices had the most marked downward contribution.
- The annual inflation rate for food and non-alcoholic beverages declined from 2.9% to 1.7%.
- The largest upward contribution came from motor fuels.
- Prices for transport were up 0.3% compared with May 2023 (April: -0.1%).
- The Core CPIH (excluding energy, food, alcohol, and tobacco) rose by 4.2% in 12 months to May 2024 (April: 4.4%).
- The CPIH services annual rate softened from 6.0% to 5.9% in May.
Bank of England Interest Rate Path
Looking ahead, the Bank of England will announce its June interest rate decision on Thursday, June 20. While economists expect the BoE to hold interest rates at 5.25%, the latest inflation numbers could play a pivotal role in influencing the BoE vote and subsequent guidance.
Furthermore, the May inflation report could fuel investor bets on an August interest rate cut. The BoE will hold a press conference after the August announcement, allowing BoE Governor Andrew Bailey to outline the rationale for an interest rate cut.
GBP/USD Reaction to the May UK Inflation Report
Before the UK inflation report, the GBP/USD fell to a low of $1.26908 before climbing to a high of $1.27134.