Easing price pressures renew optimism for base rate cut
The UK’s annual inflation rate dipped slightly to 3.4% in May, down from 3.5% in April, according to new data from the Office for National Statistics (ONS).
The figure aligns with forecasts and comes just ahead of the Bank of England’s latest interest rate decision, due on Thursday.
On a monthly basis, consumer prices increased by 0.2%, mirroring the rise recorded in May 2024. The slight decline follows April’s unexpected jump in the Consumer Price Index (CPI), which had risen to 3.5% from 2.6% in March.
Inflation continues to sit well above the central bank’s 2% target, keeping pressure on policymakers as they consider whether to adjust borrowing costs.
Core inflation, which excludes food, energy, alcohol, and tobacco, stood at 3.5% in the 12 months to May. This is a decrease from the 3.8% figure recorded for April, suggesting a modest easing in underlying price pressures.
“A variety of counteracting price movements meant inflation was little changed in May,” said ONS acting chief economist Richard Heys. He pointed to falling airfares and motor fuel prices as downward contributors, with Easter and school holiday timing playing a role in fare changes. “These were partially offset by rising food prices, particularly items such as chocolates and meat products,” he added. “The cost of furniture and household goods, including fridge freezers and vacuum cleaners, also increased.”
The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to May 2025, compared with 3.5% in the 12 months to April.
— Office for National Statistics (ONS) (@ONS) June 18, 2025
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Industry reaction focused on the implications for interest rates and mortgage activity.
Richard Pike, chief sales and marketing officer at mortgage servicing provider Phoebus, said “the drop in inflation today may reignite some hope of a further interest rate cut by the Bank of England tomorrow, which many expected we wouldn’t see until later in the year.”
“For lenders and borrowers, that could translate into greater confidence in the months ahead, especially for those approaching the end of fixed rate deals or considering entering the market,” he added.
Nathan Emerson, chief executive of industry body Propertymark, highlighted the potential stimulus a rate cut could provide to the property sector. “All eyes will be on the Bank of England tomorrow as to whether they reduce the base rates further in response to today’s news, and the changing trends of the international economy,” he said. “A drop in rates would, of course, further help stimulate the housing market, which is a vital engine of economic growth.”
Simon Webb, managing director of capital markets and finance at later life lender LiveMore, noted the potential boost to confidence in the mortgage sector. “Lower inflation strengthens confidence across the mortgage market and could bring renewed energy among borrowers who’ve been holding back,” he said. “The long-term fundamentals of the later life lending market remain robust, and today’s data is another step in the right direction for both brokers and consumers looking for certainty.”
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