Inflation stays on hold - could the outlook be better than expected?

Despite being tipped to go up, inflation stayed at 2.8% last month. At the same time, there are hopes that the US-Israel war with Iran may be about to end, so could the surge in the cost-of-living that we've all feared now be avoided?

May's inflation figures defy forecasts

Many economists had been predicting that inflation would rise to 3% last month, so the latest figures are a welcome surprise.

According to the Office for National Statistics (ONS), the rate of price increases held steady because rises in petrol, air fares and vehicle taxes were offset by lower food prices.

In fact, food inflation fell from 3% to 2.2% in the year to May - that's the slowest rate since December 2024.

The cost of domestic heating oil also fell slightly after going up in the previous few months.

What's happening in the Middle East?

A framework to end the Iran war is due to be signed later this week, but the text hasn’t yet been published, so we don’t yet know what’s in it.

But hopefully, it means that the Strait of Hormuz - a key shipping route that about a fifth of the world’s oil supply passes through - will reopen and oil will start flowing again.

Opening the Strait should ease the upwards pressure on energy, food and petrol prices - and that will be welcome news for everyone.

Economic recovery may take some time

Even if the deal is signed, the economic and infrastructure damage won't be instantly undone.

So any cost-of-living benefits are unlikely to be immediate, and we could be counting the cost of disrupted supply chains and the recent surge in prices for several months at least.

Nevertheless, the fact that inflation stayed on hold last month raises genuine hopes that the financial squeeze we were all expecting won't be as bad as first thought.

And it increases the chances that interest rates will stay on hold tomorrow, rather than go up.

What is inflation?

Inflation is a measure of how fast prices are going up.

So an increase in inflation means your money won’t buy as much as it did before.

And if inflation falls, it means that while prices are still going up, they’re rising at a slightly slower rate.

The Office for National Statistics measures inflation by tracking the prices of items in an imaginary shopping basket, such as bread, milk, cars and televisions, every month.

So the headline figure shows us how much the price of what’s in that basket has changed.

What can I do if I’m struggling with the cost of living?

If you’re worried about living costs and falling behind with vital bills, there are some practical steps you can take.

Review your spending

Take a close look at your income and expenses, so you know exactly how much money you’ve got coming in and where it’s going.

You’ll then be in a better position to budget for essential bills, prioritise your spending and work out where you can make savings.

We’ve put together a guide to how to create a budget to help you get started.

Check our regular money saving tips

We’re regularly updating these pages with ideas on how you can cut costs, such as: 

• how to make your money go further
• how to save energy
• how to keep the cost of your food shop down
• 50 ways to cut your fuel costs

You can also find round-ups of standout deals and low-cost recipes that can help you save money in the shops and at home.

See what benefits you could claim

If you're worried about your finances, it's worth checking whether you're receiving all the support you're entitled to. 

You can use our free online benefit checker to find out.

It might be more than you realise, and even if you’re in work, you could still be eligible for some help.

Get help with your debts

If you’re deal with debts that you’re struggling to pay off, contact us for confidential, practical and impartial debt advice.