UK inflation hits four-month high as energy bills surge

UK inflation climbed to its highest level in four months in May, driven by a sharp rise in household energy bills that pushed the Consumer Prices Index to 3.4% — well above the Bank of England’s 2% target and catching some analysts off guard despite forecasts of a rise.

Energy costs push prices higher

The Office for National Statistics confirmed the figure on Wednesday morning, with the jump from April’s 3.0% reading largely blamed on the energy price cap increase that took effect last month. Ofgem raised the cap by around 7% for the April-to-June quarter, adding roughly £111 to the average annual household bill. That single change accounted for the bulk of the upward pressure, though food prices and services inflation continued to grind higher in the background.

It’s the kind of number that makes life uncomfortable for policymakers. The Bank of England had already signalled caution about cutting interest rates too quickly, and this latest data won’t make that conversation any easier.

Government points to Iran conflict

Chancellor John Healey acknowledged the figures were unwelcome but insisted the government had limited room to manoeuvre on global forces pushing prices up. “The Iran war continues to impact prices here at home,” he said, pointing to elevated oil and gas costs that have rippled through energy markets since the conflict escalated earlier this year.

A 2.9% rise had been the consensus estimate among economists, so the 3.4% reading came as a genuine surprise. Still, the Treasury was quick to argue that underlying economic conditions remain stable and that wage growth — running at around 5.7% annually — is still outpacing inflation, meaning most workers are seeing real-terms gains in their pay packets.

Pressure mounts on the Bank of England

But the figures complicate the picture considerably for Threadneedle Street. Markets had been pricing in two or three rate cuts before the end of 2025. That now looks optimistic.

Rate-setters were already split at the last Monetary Policy Committee meeting in May, with two members voting for an immediate cut and seven opting to hold at 4.5%. The new inflation data is likely to harden the cautious majority’s position when the committee meets again next month.

Some economists believe the peak may be close. “We’re probably looking at inflation cooling through the second half of the year as energy base effects drop out,” said one City analyst. Core inflation — which strips out energy and food — held steady at 3.1% in May, suggesting the broader pricing pressure isn’t dramatically worsening.

What comes next

The next energy price cap decision is due in late June and is expected to bring modest relief, with early forecasts suggesting a small reduction for the July quarter. That could nudge the headline rate back down toward 3% by summer.

For now, households and businesses are left absorbing the impact of another unwanted spike. And with the Iran conflict showing no clear signs of resolution, the government’s favourite explanation for stubbornly high prices isn’t going away anytime soon.