Inflation holds at 2.8% in May 2026: What It Means for Interest Rates and Mortgages
Inflation remained unchanged in May 2026, providing another sign that price growth is becoming more stable. The Consumer Prices Index (CPI), which is the measure used by the Bank of England when setting interest rates, stayed at 2.8% in the 12 months to May, the same level as April.
While inflation has fallen significantly from the highs seen in recent years, some areas of the economy continue to experience stronger price increases than others. Rising transport costs were the main factor pushing inflation higher during May, while lower food prices and easing housing costs helped offset some of that pressure.
For homeowners, first-time buyers and anyone considering a remortgage, the latest figures provide a useful insight into the direction of the economy and what could happen next with interest rates.
Key points at a glance
- CPI inflation remained at 2.8% in the 12 months to May 2026.
- Monthly CPI rose by 0.2%, matching the increase seen in May 2025.
- Transport costs were the biggest contributor to inflationary pressures.
- Food and non-alcoholic beverage inflation fell to 2.2%.
- Core CPI increased slightly from 2.5% to 2.6%.
- Services inflation rose from 3.2% to 3.7%.
- Goods inflation eased from 2.4% to 2.0%.
- Housing-related inflation continued to slow.
What’s driving inflation in May?
Although the headline inflation rate remained unchanged, there were significant movements beneath the surface.
Rising transport costs pushed inflation upwards, while lower food prices and easing housing costs helped balance things out. As a result, the overall CPI figure stayed at 2.8%.
This shows that while inflation is becoming more stable, different parts of the economy continue to move in different directions.
Transport costs were the biggest contributor
Transport was the strongest driver of inflation in May.
Prices within the transport category increased by 6.8% over the previous 12 months, up from 4.5% in April. This was the highest annual transport inflation rate since December 2022.
Several factors contributed to this increase:
- Air fares rose by 10.3% between April and May.
- Petrol prices increased slightly during the month.
- Motor fuel prices were 24.6% higher than a year earlier.
- Sea fares increased, particularly on international routes.
The timing of Easter and school holidays appears to have influenced some of the movement in travel costs, particularly airline ticket prices.
For many households, higher transport costs continue to affect everyday spending, especially for those who commute regularly or travel frequently.
Food inflation continued to ease
One of the more positive developments in the latest figures was the continued slowdown in food inflation.
Food and non-alcoholic beverage prices rose by 2.2% in the year to May 2026, down from 3.0% in April. This was the lowest rate recorded since December 2024.
On a monthly basis, food prices actually fell by 0.1%, compared with a 0.7% increase during the same month last year.
The largest reductions came from:
- Meat products, particularly beef and cooked ham.
- Dairy products, especially cheese.
- Vegetables.
- Fish.
While food prices remain higher than they were several years ago, the pace of increases has slowed considerably, offering some relief to household budgets.
Housing costs continued to improve
Housing and household services inflation also moved in a positive direction.
The annual inflation rate for this category fell from 3.0% in April to 2.7% in May. This was the lowest level since June 2024.
Although housing costs still contribute significantly to overall inflation, the pressure has been gradually easing throughout 2026.
Owner occupiers’ housing costs also continued to slow, rising by 3.3% annually compared with 3.6% in April. This was the lowest annual increase since June 2022.
Lower housing inflation is encouraging because it suggests some of the longer-term cost pressures affecting homeowners are beginning to moderate.
Core inflation edged higher
Core inflation is often watched closely because it removes more volatile items such as food and energy, giving a clearer view of underlying inflation trends.
Core CPI rose slightly to 2.6% in May, compared with 2.5% in April.
Although this increase was relatively small, it suggests that some underlying inflationary pressures remain present within the economy.
Looking deeper into the figures:
- Goods inflation slowed from 2.4% to 2.0%.
- Services inflation increased from 3.2% to 3.7%.
The rise in services inflation is particularly important because services make up a large proportion of consumer spending and can often be slower to fall than goods inflation.
How does inflation compare internationally?
Compared with some neighbouring economies, inflation levels are now relatively similar.
The CPI inflation rate of 2.8% matched the preliminary inflation estimate for France and was only slightly above Germany’s 2.7% rate in May 2026.
This suggests inflation is no longer significantly out of line with many comparable economies, which may provide some reassurance to policymakers.
What does this mean for interest rates?
Inflation remaining at 2.8% is encouraging because it shows price growth has stabilised and is moving much closer to the Bank of England’s 2% target.
However, the increase in transport costs and the rise in services inflation mean policymakers are unlikely to declare victory over inflation just yet.
The Bank of England will continue monitoring:
- Core inflation levels.
- Services inflation.
- Wage growth.
- Consumer spending.
- Future energy and transport costs.
While further reductions in interest rates remain possible over the coming months, decision-makers will want to see continued evidence that inflationary pressures are easing sustainably before making significant changes.
What this means for you
If you are considering buying a home, moving house or remortgaging, the latest inflation figures are broadly positive.
Stable inflation creates a more predictable environment for lenders and borrowers. It also increases the likelihood that interest rates can gradually move lower over time if inflation continues to remain under control.
That said, mortgage rates are influenced by a range of factors beyond inflation alone, including financial markets, swap rates and lender competition.
This means there may still be opportunities available even if the Bank of England does not make immediate changes to interest rates.
At Kerr & Watson, we help you understand how economic developments affect your mortgage options. Whether you are a first-time buyer, moving home or reviewing your current mortgage, we can provide clear, straightforward advice tailored to your circumstances.
Looking ahead
The next few months will be important in determining the future direction of inflation.
Areas worth watching include:
- Transport costs, which have risen sharply.
- Services inflation, which remains elevated.
- Food prices, which have been easing steadily.
- Future Bank of England interest rate decisions.
- Global events that could affect fuel and travel costs.
If inflation continues to remain close to current levels or moves closer to the 2% target, confidence in the economic outlook is likely to improve.
Conclusion
Inflation remained unchanged at 2.8% in May 2026, with higher transport costs offset by lower food inflation and easing housing pressures. While some areas of the economy continue to experience price increases, the overall picture is one of greater stability than seen in recent years.
For homeowners and prospective buyers, this is a welcome development. Although challenges remain, particularly within transport and services, inflation is much closer to target levels and moving in the right direction.
If you would like to discuss how the latest inflation figures could affect your mortgage, remortgage or protection needs, the team at Kerr & Watson is here to help with clear, personalised advice.
Read more: Consumer price inflation, May 2026
