UK inflation unchanged in May at 8.7%; core inflation at 31-year high

UK consumer price inflation came in higher than expected in May, while core inflation hit a 31-year high, according to figures released on Wednesday by the Office for National Statistics.

CPI remained at 8.7%, coming in above expectations for a decline to 8.4% and putting pressure on the Bank of England to keep hiking rates.

Meanwhile, core inflation - which strips out volatile elements such as food and energy - rose to 7.1% from 6.8% in April, hitting its highest level since 1992. Analysts were expecting it to be unchanged.

ONS chief economist Grant Fitzner said airfares and second-hand cars were keeping inflation high.

"After last month’s fall, annual inflation was little changed in May and remains at a historically high level," he said.

"The cost of airfares rose by more than a year ago and is at a higher level than usual for May.

"Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.

"These were offset by a fall in the cost of petrol.

"Food price inflation remains high, but the rate has eased slightly this month with costs rising more slowly than this time last year."

Capital Economics said the rise in inflation "increases the chances that the Bank raises interest rates by 50 basis points tomorrow rather than the 25bps rise from 4.50% to 4.75% we are forecasting".

"Either way, the acceleration in core inflation leaves the UK looking increasingly like the global outlier and the ‘stagflation nation’," said chief UK economist Paul Dales.

Pantheon Macroeconomics said: "May’s CPI figures ratchet up the pressure on the MPC to increase Bank Rate substantially further over the coming months, though we still think the Committee will keep to a 25bp increase tomorrow, rather than switch back to a 50bp hike."