Key Takeaways
- Inflation held at 2.8% in May 2026, with services inflation at 3.7% and goods at 2.0%, according to the Office for National Statistics (ONS) on 17 June 2026.
- Core CPI, which excludes volatile food and energy, stood at 2.6% in May 2026, per the ONS.
- The Bank of England held its base rate at 3.75% at its June 2026 meeting, with the next decision scheduled for 30 July 2026.
- GDP grew 0.6% in the first quarter of 2026 compared to the previous quarter, driven by a 0.8% rise in services, the ONS reported in its Quarterly National Accounts.
- Annual GDP growth for 2025 was 1.3%, according to the ONS.
The Data
LONDON — The UK’s annual inflation rate held steady at 2.8% in May 2026, the Office for National Statistics reported on 17 June 2026, as persistent price pressures in the services sector kept the Bank of England on hold.
Core inflation, which strips out volatile energy and food prices, was 2.6% in May, the ONS said. A key split shows services inflation running at 3.7%, far above the 2.0% rate for goods, highlighting the sticky nature of domestic price pressures.
The Bank of England held its base interest rate at 3.75% at its June meeting. The central bank’s next rate decision is scheduled for 30 July 2026, with markets watching closely for any shift in policy stance.
The UK economy grew 0.6% in the first quarter of 2026 compared with the previous three months, according to the ONS’s Quarterly National Accounts. The expansion was led by the services sector, which grew 0.8%, while production output slipped 0.1%.
Labour market data was not included in this report.
Services Inflation Runs Hot
The persistence of high services inflation is the central bank’s biggest headache. At 3.7%, services prices are rising nearly twice as fast as goods, reflecting strong wage growth and rising costs in hospitality, travel, and professional services.
This gap between services and goods inflation suggests the Bank of England may need to keep rates higher for longer. Unlike goods prices, which are influenced by global supply chains, services inflation is driven by domestic demand and labour costs, making it harder to bring down.
What This Means
For households, the 2.8% inflation rate continues to erode purchasing power. Mortgage holders on variable-rate deals face ongoing pressure with the base rate at 3.75%, though some lenders have begun to offer slightly cheaper fixed-rate deals as market expectations for rate cuts shift.
For businesses, borrowing costs remain elevated at 3.75%, squeezing margins for firms with debt. The strong services growth of 0.8% in Q1 is a positive sign for consumer-facing companies, but the slight contraction in production output of 0.1% signals weakness in manufacturing and construction.
Outlook
The next key data point is the CPI release on 22 July 2026, which will show whether inflation is continuing to ease or reaccelerate. That will be followed by the Bank of England’s Monetary Policy Committee decision on 30 July 2026.
Analysts expect the Bank of England to hold rates again in July unless there is a sharp drop in services inflation. The key risk is that wage growth in the services sector keeps inflation above the 2% target for the rest of 2026.
Data sourced from Office for National Statistics (ons.gov.uk) and Bank of England (bankofengland.co.uk). Analysis by Economic Pulse Data Team.
Edited by Editorial Desk. Fact-checked by Editorial Desk. This is analysis, not financial advice.
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