UK inflation remained steady at 2.8% in May, coming in slightly below analyst expectations, according to official figures released on Wednesday.
Economists polled by Reuters had forecast the annual inflation rate would climb to 3% during the month, making the steady reading a mild surprise for markets.
The Office for National Statistics said transport was the biggest contributor to rising prices in May, partially offset by falling food and non-alcoholic drink prices.
Air fares surged 10.3% month-on-month, with motor fuel and sea fares also pushing transportation costs higher for British consumers during the period.
Analysts noted that the timing of the Easter holiday this year may have contributed to the sharp rise in travel fares seen across multiple transport categories.
The price of gasoline rose by an average 0.6 pence per liter between April and May, compared with a fall of 2.1 pence over the same period a year earlier.
Average gasoline prices rose to their highest level since November 2022, when energy costs spiked in the wake of Russia’s full-scale invasion of Ukraine.
Inflation had cooled to 2.8% in April, with that drop attributed to a change in the UK’s regulated energy price cap, though the relief was always expected to be temporary.
The price cap is due to rise by 13% later this summer, when energy costs are forecast to hit a two-year high, adding further pressure on household budgets.
Policymakers at the Bank of England’s Monetary Policy Committee voted to hold its key interest rate at 3.75% at their most recent meeting, citing global energy market disruptions.
The committee said “monetary policy cannot influence energy prices,” referencing the impact of the US-Iran war, which has kept oil and gas prices elevated for months amid the closure of the Strait of Hormuz.
Markets are currently pricing in a 95% chance that the Bank of England holds rates steady at its next meeting on Thursday, according to LSEG data.
Despite the expected hold this week, traders are pricing in the possibility of an interest rate hike from the central bank before the end of the year.