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Inflation stayed at 2.8% in the 12 months to May, according to the latest data from the Office for National Statistics (ONS), with easing food costs helping offset steeper transport costs.
Core inflation, which strips out more volatile food and energy prices, edged higher to 2.6% in May, up from 2.5% in April, while services inflation rose to 3.7% in May, up from 3.2% in April. Food inflation slowed to 2.2% in May, down from 3% in April.
You can read about some of the ways you might be able to reduce your food costs in our guide 21 ways to save money on your food bills.
Meanwhile, the Retail Prices Index (RPI) measure of inflation, which includes housing costs, increased to 3.2% in the 12 months to May, up from 3% in April.
Kevin Brown, savings specialist and Scottish Friendly, said: “The data suggests the recent energy shock hasn’t fed through as forcefully as feared, giving the Bank of England more room to look through immediate inflationary pressure from the Iran conflict.
“At tomorrow’s meeting, the Bank will likely still need to tread carefully. The economy contracted in April, hiring intentions remain weak and households are highly price sensitive, so raising rates could add pressure while lacking the power to lower global energy prices.
“Hopefully easing pressures in the Middle East should dampen inflation concerns and give policymakers more time to assess whether this is a short-term shock. That points to a hold, while an unchanged reading makes it harder to argue for an immediate rate rise.
“For households, this is encouraging, but inflation doesn’t need to be rising for the cost-of-living squeeze to remain painful. The practical response for many will be to review savings rates, energy tariffs, mortgage costs and everyday spending, while considering whether longer-term money could work harder through investing.”
What inflation means for you
When inflation holds steady, this means household living costs are rising at the same rate as they were previously. News that it has remained at 2.8% in the year to May is therefore welcome, although it remains well above the government’s 2% target.
Wage growth continues to outstrip the rate of inflation, although it grew at its slowest rate for six years in the three months to March, with regular pay, excluding bonuses, falling to 3.4%, down from the previous figure of 3.6%.
Mike Ambery, Retirement Savings Director at Standard Life plc, said: “Today’s unchanged 2.8% inflation reading may offer some relief to many across the UK, with a rise to 3% broadly expected. That said, the figure still sits above the Bank of England’s 2% target, and many households will continue to feel the strain. The recent US-Iran truce could help ease pressure on oil prices later this year if it holds, but with the July energy price cap change on the horizon, household bills are likely to stay under pressure over the summer.
“This context makes tomorrow’s Bank of England decision especially important. Rates are widely expected to be held at 3.75%, but the outlook from here is less straightforward as policymakers balance signs of a softer labour market against the risk of persistent above-target inflation. While a sustained easing in global pressures could reduce the need for further tightening, the Bank will be watching the data closely.”
Inflation and your pension
September’s inflation number is usually considered the most important inflation rate of the year for those reliant on the State Pension. That’s because the increase in prices over the year to this point is usually used to calculate the rate at which certain allowances and benefits, including the State Pension, are increased the following April.
Under the ‘triple lock’ guarantee, the State Pension is guaranteed to rise by the highest of September’s inflation figure, earnings growth, or 2.5%. Earnings figures for the three months to July are used for the yearly increase, and given that these stood at 4.8% last year, that means that the State Pension increased by this amount earlier in April 2026, resulting in an annual rise of up to £575 for those receiving the new State Pension. You can find out more about this in our guide What is the pension triple lock?
Inflation holding steady for now is bad news for pensioners who need to make sure their pension lasts throughout their retirement, and the fact that it is likely to rise further in the coming months is worrying for many.
Mr Ambery said: “For households and those planning for retirement, the squeeze may not ease quickly. Just because the figure has not increased month on month, prices are still rising, and over time that can steadily reduce spending power, particularly for people approaching retirement. When essential costs rise, pension contributions can feel like an easy place to cut back, but doing so can mean missing out on tax relief, employer contributions and potential investment growth. Where affordable, keeping contributions going, or restarting them when possible, can help people stay on track.”
Retirees on the lookout for a guaranteed income will find annuities continue to offer good value. The latest data from Hargreaves Lansdown’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,195 per year from a single life level annuity, with a five-year guarantee.
Inflation-linked products are also available – one that rises by 3% per year can give a starting income of up to £5,965 per year at the age of 65 based on the same sized pension pot. As this is considerably lower than a level product, you do need to consider how long it will take the income to catch up to that of a level product.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said, “Income drawdown can play a huge role in helping retirees manage inflation long term. By remaining in the markets, it gives their investments time to grow further, though it’s important to say markets can also be volatile. A flexible approach is important to make sure you aren’t taking too much out and potentially depleting capital. Mixing and matching annuities and drawdown could be a great option. You can secure a level of guaranteed income with an annuity and then keep some flexibility when drawing an income from drawdown. You can then consider annuitising in stages, potentially securing higher incomes as you age.”
You can find out more about annuities in our guide Annuities explained and about drawdown in our article What is pension drawdown and how does it work? If you want to learn more about the impact of inflation on your retirement savings, read our article How does inflation affect my pension?
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What does it mean for interest rates and your mortgage?
The Bank of England raised the base rate 14 consecutive times since December 2021 to try to dampen inflation, and made its first base rate reduction for over four years in August 2024, taking the rate from 5.25% to 5%. This was followed by a further quarter-point cut in November 2024 and four more in February, May, August and December 2025, which means the base rate is currently at 3.75%.
The fact that inflation is unchanged in the 12 months to May. means we are unlikely to see interest rates change this month, although the future trajectory of rates depends on which way inflation moves next.
Swap rates, which determine fixed-rate mortgage pricing, have been volatile in recent weeks, with many lenders withdrawing and replacing deals after just a few days.
Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau, said: “Encouragingly, confidence among prospective homebuyers remains strong, with our research revealing that 75% feel confident about their mortgage options despite ongoing market uncertainty. This suggests that underlying demand for homeownership remains healthy, even as economic conditions remain mixed.
“With economic activity showing signs of weakness and inflation no longer moving materially higher, we expect policymakers to become more focused on supporting growth through 2026. For mortgage borrowers, there may still be some short-term volatility, but we continue to expect the broader direction of interest rates to be downward as attention shifts towards boosting the economy.”
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
However, even if mortgage rates ease temporarily, borrowers who locked into very low five-year fixed rates in 2021 are likely to face a sharp jump in payments when they come to remortgage, so should start planning for this as soon as possible.
If you’re worried about a potential payment shock when your current mortgage deal ends, read our articles When is the best time to remortgage? and Are you facing a mortgage timebomb?
Impact on savers
If you’re trying to save so that you have a financial buffer in place to cover rising costs, our articles How to build an emergency fund and Best instant access savings accounts may come in handy. Savings rates have risen in recent weeks, so it’s worth checking how much interest your savings are earning and switching to a higher-interest-paying account if one is available.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said: “Loyalty rarely pays and the best rates are typically reserved for new money, not existing customers.”
Eastell calculates that the most flexible accounts from the major high street banks pay just 1.16% on average, whereas the market-leading easy access savings accounts offer 4.89% before tax. For a saver with a £10,000 deposit, this could be a difference of £373 interest over one year.
“Savers who move away from low-paying high street banks can grow the real value of their cash and stop emergency funds being eaten away by inflation,” she said.
You can learn more about inflation and the impact it has on your finances in our guide What does inflation mean for my money? If you’re looking for ways you might be able to reduce your outgoings, read our article How to save money – 21 money saving tips.
Free financial support services
Millions of people are struggling financially at the moment, and although inflation has eased, it remains high, making it difficult for many to manage their outgoings.
If your debts are starting to spiral out of control, contact Citizens Advice to help you find a way forward. You can speak to an advisor through its national phone service Adviceline on 0800 144 8848 if you’re in England, 0800 702 2020 if you’re in Wales, 0800 028 1456 if you’re in Scotland and 0808 223 1133 if you’re in Northern Ireland. Alternatively, contact any of the following specialist debt advice charities:
- National Debtline (telephone 0808 808 4000)
- Debt Advice Foundation (telephone 0800 043 4050)
- StepChange (telephone 0800 138 1111)
Sarah Pennells, consumer finance specialist at Royal London, said: “If you’re worried about rising costs, it’s important to check whether you’re on the best deals for your energy, broadband and insurance. Tracking your daily spending, even for a week or two, can also reveal where small savings can be made.
“Making a budget and prioritising essential payments can help you feel more in control, even as prices continue to rise, but for anyone really struggling, it’s important to ask for help as early as possible.”
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