Inflation continued its gradual decline in May 2025, with the Consumer Prices Index (CPI) rising by 3.4% in the 12 months to May, down slightly from 3.5% in April, according to the Office for National Statistics (ONS).
The monthly increase in CPI was 0.2%, compared to 0.3% in May 2024.
The slowdown was primarily driven by a fall in transport costs, which made the largest downward contribution to the annual inflation rate.
This was partially offset by rising prices in food, and furniture and household goods.
Core inflation, which excludes energy, food, alcohol and tobacco, also eased.
Core CPI rose by 3.5% in the year to May, down from 3.8% in April. Within this, goods inflation picked up slightly from 1.7% to 2.0%, while services inflation slowed from 5.4% to 4.7%.
The ONS noted that April’s inflation figures were overstated due to an error in the Vehicle Excise Duty (VED) component.
Although the April data has not been revised in line with ONS policy, corrected VED figures have been used in the May calculations.
While inflation remains above the Bank of England’s 2% target, the continued easing in core and headline CPI may support expectations for interest rate cuts later this year.
Reaction:
George Holmes, managing director of Aurora Capital:
“Flatlining inflation is the worst of both worlds for small businesses. Costs aren’t rising fast enough to force the Bank of England’s hand, but they’re not falling fast enough to provide relief either.
“Business owners are caught in limbo. Lending remains expensive, customers are cautious, and cash flow is tight. Every delay to rate cuts makes it harder for SMEs to stay resilient.
“There’s a risk the Bank waits too long. If growth stalls before rates fall, the damage to small business confidence could be deep and lasting.”
Richard Pike, chief sales and marketing officer at Phoebus:
“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.
“While policymakers are likely to remain cautious, particularly with wage growth still elevated, today’s figures offer a welcome sign that inflationary pressures are continuing to ease.
“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.
“But volatility is still a key feature of the economic landscape and the sector must continue to prioritise resilience.
“Lenders need the flexibility to adapt quickly to shifts in rates and sentiment, which means having the right systems and processes in place to support brokers, manage risk and deliver a seamless customer experience.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“The easing inflation today may boost the chances of a rate cut from the Bank of England tomorrow, sooner than previously expected.
“Lower inflation strengthens confidence across the mortgage market and could bring renewed energy among borrowers who’ve been holding back. For the later life sector, where financial needs are often more complex, this stability is particularly valuable.
“We continue to see strong interest from borrowers over 50 who want flexible lending options that align with their retirement goals or income mix.
“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.”
Sarah Pennells, consumer finance expert at Royal London:
“A fall in inflation is welcome news, but the cost of living remains a daily struggle for many. Prices may be rising more slowly, but they’re still rising.
“Our latest Financial Resilience report shows that people’s purse strings are still tight, as a lack of short-term cash savings has, worryingly, stayed consistent over the last two years. One in five adults tell us they have less than £100 in cash savings, a figure that has remained unchanged for two years.
“But it isn’t all doom and gloom – in February 2024, three quarters (75%) of adults told us that their retirement savings and plans had been affected by the higher cost of living. This year it fell significantly to 43%.
“Inflation isn’t just a number, it’s about real people making tough choices every day, from heating their homes to putting food on the table. Anyone worried about money should seek help early and check if they’re entitled to extra support.”
Nicholas Hyett, investment manager, Wealth Club:
“Higher food and drinks costs offset most of the easing in inflation from other sources – with the annual increase in food and drink prices rising from 3.4% in April to 4.4% in May.
“The net result is that UK inflation remains high, and far higher than elsewhere in Europe.
“That is unwelcome but not unexpected. The hope was that price increase would slowly roll off over the course of the next 12 months as we annualise things like council tax hikes and the effect of April’s higher labour costs. The turmoil in the Middle East has upset that.
“The price of Brent crude has moved sharply higher despite key global oil routes remaining largely unaffected so far, and the conflict has the potential to disrupt global energy flows much more severely than it has so far.
“As a key input into pretty much everything, a spike in oil would drive up prices across the board. The inflationary risk from the Middle East, combined with already rising prices, could change the calculus for the Bank of England and make rate cuts that bit less likely.
“It’s often said that no man is an island. When it comes to inflation, it seems no country is either – even those surrounded by water.”