Inflation holds steady at a corrected rate of 3.4 per cent, but new cost of living pressures loom

While CPI inflation remained unchanged at a corrected rate of 3.4 per cent in May, recent increases in energy prices arising from conflict in the Middle East mean renewed price pressures are set to hit struggling low-income households in the coming months, according to the Resolution Foundation today (Wednesday).

The headline rate of CPI inflation fell from 3.5 per cent in April to 3.4 per cent in May. This 0.1 percentage point drop reflects an error in the April data on Vehicle Excise Duty, which will not be revised, meaning the rate of inflation in May was essentially the same as in April.

This leaves inflation in line with the Bank of England’s May forecast (of 3.4 per cent) and slightly above market forecasts of 3.3 per cent.

On the month, there was significant downward pressure on inflation from a fall in erratic airfares which were higher than normal in April due to the timing of Easter. There have been renewed rises in food prices, which increased by 4.4 per cent in the year to May, the most significant increase in more than a year (since February 2024). This will put additional pressure on low-income households, who spend a greater portion of their budgets on essentials, and who are still struggling with the legacy of higher prices.

The conflict in the Middle East has already driven oil prices up by more than 15 per cent this month (although they are still 10 per cent lower than their peak in January). Wholesale gas prices have also risen, potentially putting further upward pressure on bills in the coming months.

This is troubling given the continued impact of the high cost of living. The total stock of Great Britain’s household energy debt and arrears doubled in real terms between 2020 and the end of 2024, rising from £1.8 billion to £3.9 billion. Further increases in the price of energy will be hardest for the poorest households to swallow, given that they already spend nearly twice as much on their energy bills as the highest-income households – 11 per cent of total spending compared with 6 per cent in 2022-23.

Higher energy prices will also weigh on tomorrow’s Bank of England interest-rate decision, making a cut even less likely despite signs of a rapidly cooling labour market.

James Smith, Research Director at the Resolution Foundation, said:

“While Inflation holds steady at a corrected rate of 3.4 per cent in May, rising oil prices following renewed conflict in the Middle East mean that struggling families will be facing further cost of living pressures in the coming months.

“With oil prices up more than 15 per cent this month, family petrol and utility bills look set to rise in the coming months, adding to pressures on struggling families, particularly those on lower incomes.

“The rise in energy prices is also bad news for mortgagors as it will renew worries for Bank of England policy makers that it could take even longer for inflation to fall back to target.”