Responding to the latest inflation figures, Julian Jessop Economics Fellow at the IEA said:

“The official figures for May provide a bit more reassurance on inflation. The CPI measure was unchanged at 2.8%, against expectations of a rise to 3%, while food price inflation actually fell.

“The underlying picture is relatively simple: upward pressure from higher transport costs (mainly motor fuel and airfares) was offset by falls in inflation almost everywhere else.

“This is consistent with the survey evidence that weak demand and strong competition are keeping corporate pricing power in check, despite rising costs. Market forces are far more effective in controlling inflation than any amount of government tinkering.

“These figures will help the Bank of England to justify keeping interest rates on hold this week, especially if tomorrow’s labour market data is also soft.

“Nonetheless, inflation has now been back above the 2% target for more than a year and a half, and it is still likely to rise further.

“Even if the US-Iran peace deal holds, there is plenty of cost pressure in the pipeline from past increases in commodity prices and from the ongoing disruption to global supply chains. The UK government is still loading businesses with extra costs too.

“Inflation is therefore unlikely to return to the 2% target before the end of next year. This is pushing the boundaries of what could reasonably be downplayed as a “temporary” overshoot.

“In short, today’s data may give the Bank of England a little more breathing room, but it is far too soon to dismiss the upside risks either to inflation or to interest rates.”