UK inflation is set to have increased again last month over more expensive airfares and car duty. Economists have predicted that the rate of Consumer Price Index (CPI) inflation rose to 3% in May, from 2.8% in April. It would mean that price increases for goods and services accelerated compared with the previous month.
Energy price cap impact
Inflation had slowed to its lowest level for more than a year in April because of a decline in household energy prices for the month. Ofgem lowered its energy price cap from the start of April by 7%, or £10 a month, for the average household using both electricity and gas, pushed lower by Government measures to reduce bills. It meant that inflation declined for the month despite a jump in fuel costs caused by the impact of the conflict in the Middle East.
Airfares and car duty drive increase
The Ofgem price cap is set to have kept a lid on energy price inflation for May, but the impact of the Iran war is still expected to drive the monthly inflation rate higher again. Analysts at Pantheon Macroeconomics have predicted that airfares will “rebound strongly” in May, potentially contributing to higher inflation for the month. Experts have predicted that airlines and holiday firms will unwind price cuts from April, contributing to inflation against the previous month.
Vehicle excise duty could also add 0.1 percentage points to inflation for the month, Pantheon said. They said the ONS overstated the rise in car duty in April 2025, resulting in a correction in May 2025. The year-on-year comparison of this is expected to help drive the inflation rate higher this May.
Future outlook
Inflation is widely expected to keep steadily increasing over the coming months, with most economists predicting that it will peak at between 3.5% and 4% in the second half of 2026. Bank of England forecasts from April predicted that inflation would average around 3.1% in the second quarter of this year and peak at around 3.6% in a more benign scenario related to the Middle East conflict.
On Thursday, policymakers at the central bank will vote on whether to maintain interest rates at their current rate of 3.75% or increase or decrease this rate. The Bank is expected to hold off an interest rate hike despite concerns that the Middle East conflict will push the cost of living higher.
