Quick overview

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U.K. inflation remained above the Bank of England’s medium-term target ahead of its policy-setting meeting later this week, despite a slight annual cooling in May. Although it decreased slightly from the 3 percent rise in May, annual consumer price inflation was still higher than in the U.K.

The BOE’s medium-term goal is 2 percent. The monthly rate increased by 0.2 percent, reversing the  1.2 percent increase observed in March. Analysts had predicted the CPI would rise by 0.3 percent annually and 0.2 percent monthly.

With the annual rate at 3.5 percent, down from 3.8 percent the previous month, the core CPI, which excludes volatile energy and food prices, increased by 0.2 percent monthly. Increased employer expenses, such as higher minimum wages and National Insurance premiums, contributed to April’s higher figure, but these effects should eventually fade.

The Bank of England survey released late last week showed that while short-term expectations decreased, the British public’s expectations for inflation over the medium term remained at their highest level in several years. According to the survey, inflation expectations in five years were at 3 to 0.6 percent in May, unchanged from February’s reading, which was the highest since November 2019.

Inflation expectations for the next year fell from 3.4 percent to 3.2 percent, while those for the following year remained at 3.2 percent, the highest level since November 2022. After lowering its key base rate by 25 basis points to 4 percent at the beginning of May, the Bank of England is expected to maintain interest rates at its policy-setting meeting on Thursday.