Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm

• Inflation staying flat was unexpected and will mean for sure no interest change tomorrow
• Inflation likely to edge higher over coming months driven by Ofgem energy price cap increase
• But Middle East peace hopes and domestic pressures weakening could keep figures lower than feared

Inflation countered expectations and stayed the same in May after a drop in April bringing relief to the Government, businesses, and households. Lower food prices in particular will be welcomed by hard pressed families.

Despite this inflation is likely to edge higher over the coming months, even if tensions in the Middle East are resolved quickly. The main cause of higher inflation will be Ofgem’s decision to raise the energy price cap by 13% from 1st July 2026, reflecting higher wholesale gas prices and ongoing pressures in global energy markets.

For the government this will be welcome news this morning. Rising prices increase spending on welfare, pensions, and public sector services, putting additional strain on already stretched public finances. At the same time, persistently high inflation makes it harder for households to rebuild living standards and for businesses to plan with confidence.

This number will not change policymakers’ intentions, who are expected to vote to hold interest rates at 3.75% at their June meeting tomorrow. The Bank is continuing to hold their nerve, as they monitor the difficult, ongoing trade-off between keeping inflation under control and avoiding further damage to an economy that has been struggling to gain momentum.

Importantly, the Bank may not have to raise rates at all this year. Inflation is still well below the peaks of recent years and has not yet risen as high as many had feared. Price pressures are being imported, while domestic inflationary pressures — such as wage growth and demand-driven inflation — are cooling. If a pathway to peace in the Middle East materialises and the reopening of the Strait of Hormuz holds, hopes of inflation staying below 4% could be realised.