The ONS has released inflation figures for May: Consumer price inflation, UK: May 2025 – Office for National Statistics. With the release in mind, Sarah Coles, head of personal finance, Hargreaves Lansdown comments.
“After April’s inflation figures made a messy mistake-laden splash, May’s won’t be making waves. After falling to 3.4% – where it would have been a month earlier if the maths had been right – the ripples will barely touch the Bank of England as it deliberates the next move for interest rates. Meanwhile, the mortgages and savings markets could be directed more by the winds of the bond market than they are by the impact of inflation.
What’s moving prices?
Prices are still rising faster than the Bank of England would like, thanks in no small part to the rises in household bills in April. We’re still feeling the pain in the annual figures of the £111 rise in the energy price cap, the £123 rise in water bills and the £109 increase in council tax. Electricity is now up 4.6% in a year and gas 12.3%.
The cost of transport rose just 0.7% in May. This had soared in the April figures thanks to the mistake in the car tax figure. We’re still experiencing the after-effects of seasonal turbulence in airfares. This year, Easter pushed prices up in April, before falling back again in May. Last year, an early Easter pushed prices up in March, down in April and then up again in May. It means we’re comparing a 5% fall between April and May this year with a 14.9% rise a year earlier. Meanwhile, prices continued to ease at the pumps last month. The average price of both diesel and petrol fell – 2.1p per litre and 2.6p per litre respectively, as concerns about the global economy depressed the oil price and brought savings at the pumps.
Food prices are ones to watch, after rising 4.4% in the year to May – up from 3.4%. This is the biggest rise since February last year. It owes something to rising National Insurance for employers being passed on in prices on the shelves, which we could see more of in the months to come. However, there are some particularly striking rises in the shopping basket too. Poor weather affected livestock, so the cost of beef and veal was up 17%, lamb and goat 11.2% and butter 18.2%. The cost of chocolate also rose significantly, and is up 17.7% in a year after poor cocoa harvests. Your experience will depend on exactly what you put in the trolley, because some prices have actually fallen over the past year – including pasta, olive oil and rice.
What it means for rates
The fact that inflation has fallen back slightly – to where it effectively was last month – should bring some comfort to the Bank of England as it considers the next move for interest rates. They were expecting inflation to remain well above target at this point in the year, so it won’t necessarily spark a rethink on rates. Before the announcement, the markets were expecting two more cuts by the end of the year, and there’s a reasonable chance this won’t move significantly on the back of today’s news.
Of course, the June figures could bring decidedly less welcome news. The spike in energy prices caused by geopolitical instability will feed through into pain at the pumps, and will start to pass through into the costs of producing and transporting all other goods. An awful lot will depend on how long higher oil prices endure. A brief blip shouldn’t frighten the horses, but something more prolonged could encourage more caution on cuts.
What this means for your finances
Rate expectations are one major factor in pricing savings, annuities and mortgages. The fact that inflation hasn’t delivered any major surprises means it’s unlikely to have a major impact on current rate forecasts, so we can expect more rate cuts this year, putting downwards pressure on the rates on savings, mortgages and annuities.
However, it’s not all about rate expectations. The other major factor driving the market is bond yields, and these are being driven by forces outside the UK. Investors don’t like the US government’s plans to tax less and spend more. They’re also concerned about the credit downgrade of the country. This has caused a rush away from US bonds, which depressed prices and pushed up yields. When they rise in the US, they tend to push yields up globally, so they’re rising in the UK. Rising bond yields tend to raise the rates on savings, mortgages and annuities.
This means the markets are being pulled in opposite directions. It tends to be easier to see in the mortgage market, because margins are so tight, so we’ve seen some lenders cut rates and others raise them. For savings and annuities it tends to mean less movement altogether.
The fact that things are so uncertain means forecasts can never be nailed on. It means that instead of trying to second-guess global political developments, it makes sense to pick the right type of savings account for your needs – whether that’s easy access or fixed rate accounts – and checking online banks and savings platforms for the best possible deals. For those in the market for an annuity, it means using an annuity search engine to check the full market, to make sure you’re getting the best income you can.”
