Inflation remained at 2.8% in May, despite expectations it would rise to 3%, easing concerns the Bank of England would raise the Bank Rate at Thursday’s meeting of the Monetary Policy Committee.

The surprise figure comes after there were growing concerns about inflation last week when the European Central Bank (ECB) became the first G7 central bank to raise borrowing costs, with warnings about higher energy costs and the Iran conflict.

Instead, although services inflation rose from 4.6% to 4.7% and transport costs increased from 3.3% to 4.7%, this was offset by food inflation, which fell sharply from 3% in April to 2.2% – its lowest level since December 2024.

In addition, Brent crude has now fallen below $79 a barrel after traders bet the US-Iran peace agreement would finally bring the conflict to an end.

Core inflation, which strips out more volatile items such as food and energy, also remained unchanged at 3.5%.

The Bank of England is now widely expected to leave the Bank Rate unchanged at 3.75% when policymakers announce their decision on Thursday.

Industry reaction

Nathan Emerson, CEO of Propertymark, says: “With inflation holding steady, there will be a degree of reassurance that price pressures are not continuing to accelerate. However, inflation remains above the Bank of England’s 2 per cent target, highlighting that there is still work to be done before the wider economy returns to more normal conditions.

“For consumers, stability can be just as important as improvement. A period of steady inflation gives households, businesses and policymakers greater certainty when planning ahead and assessing future financial commitments.

“Many people continue to face affordability challenges, particularly when it comes to housing costs. Sustained economic stability should help support confidence across the property market and provide a stronger foundation for future growth and investment.”

Samuel Fuller, Director of Financial Markets Online, says: “This was a huge upside surprise. Many market watchers were convinced that April’s relatively modest inflation number was a fluke.

“But May’s numbers suggest that the inflationary tidal wave we had been expecting has just melted away.

“While still well above the Bank of England’s 2% target, May’s annual CPI number almost feels benign.”

John Phillips, CEO of Just Mortgages and Spicerhaart, says: “Inflation data springs yet another surprise, remaining stable with lower food prices doing the heavy lifting to defy widespread expectations of an increase. This, however, is hugely welcome news – particularly ahead of the MPC decision tomorrow.

“Ahead of that decision, we do have news of a supposed US-Iran peace deal, which is ready to be signed. While reports suggest it has more holes than a chocolate teapot, it is the positive progress that markets and economists have been waiting to see. In truth, oil prices have already reacted positively.

“While it may not be a magic cure for inflation, it does give rate setters the scope to be more measured in their approach to monetary policy moving forward. Even with this surprise from inflation, a hold is still the most likely outcome tomorrow. But this improving picture will hopefully alleviate any need for the multiple hikes as had been previously feared.

“As swap rates continue to stabilise and react favourably to this news, we absolutely need to be shouting about this to our clients. We have already been seeing movements from lenders across the market, proving that there is plenty of money out there and lenders ready and willing to lend. It’s up to us to be proactive, to really engage with our customer base and give them the guidance they need to navigate a changing market.”

Paula Matthews, Strategic Relationship Director at LGSS, says: “Unchanged inflation may not grab headlines, but it could prove just as significant as a rise or fall.

“Sometimes, the most valuable signal is the absence of change.

“For lenders, stability in inflation helps reinforce expectations around the broader economic outlook and gives markets more confidence in the assumptions sitting behind pricing and risk decisions.

“That does not mean uncertainty disappears. Affordability pressures remain, and the outlook for interest rates will continue to depend on a range of economic indicators. However, a period of relative stability allows lenders to focus less on reacting to new shocks and more on executing against their existing plans.

“From a valuation and surveying perspective, consistency matters. Lenders still need confidence that decisions are being supported by robust data, appropriate valuation methodologies and experienced professional judgement.

“The apparent conclusion of hostilities in the Middle East should also ultimately improve confidence, in addition to any objective impact on interest rates.

“Whether inflation rises, falls or remains unchanged, the underlying challenge is the same: making informed decisions in an environment where confidence can shift quickly.

“Stability does not remove that challenge, but it does make it easier to manage.”