Inflation in the U.K. dropped modestly in May, as a decline in air fares and transport costs was largely offset by rising food prices, particularly chocolate, official figures showed Wednesday.
The Office for National Statistics said consumer prices rose by 3.4% in the year to May, down from 3.5% the previous month.
That means inflation remains substantially above the Bank of England’s 2% target. The bank’s rate-setting Monetary Policy Committee is due to announce its latest interest rate decision on Thursday. Most economists expect the nine-member panel, which has cut borrowing rates on a quarterly basis since last August, to keep its main interest rate at 4.25%.
The decline was less than expected. Most economists had forecast a reading of 3.3% for May as price growth cooled, following a raft of bill increases the previous month that pushed inflation to the highest level in more than a year.
The higher-than-anticipated outcome was largely due to a 4.4% increase in food and non-alcoholic drink prices. Pantry staples like sugar, jam and chocolate, as well as ice cream, saw the biggest monthly price hikes, while meat costs also rose.
Economists, including those at the Bank of England, expect inflation to remain above target for the rest of the year. Uncertainty over U.S. President Donald Trump’s tariff agenda and unrest in the Middle East make it difficult to forecast economic developments and the path of interest rates.
“We are sticking with our call for the Bank of England to continue to reduce rates at a quarterly cadence,” said Felix Feather, economist at asset management firm Aberdeen. “But geopolitical uncertainty and risks from U.S. trade policy raise both upside and downside risks to this forecast.”