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Inflation remains "stubbornly high" at 3.4% in May and "risk of stagflation is very real"

ended 18. June 2025

Inflation remains "stubbornly high" at 3.4% in May and the "risk of stagflation is very real", experts have warned.

The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to May 2025, compared with 3.5% in the 12 months to April, according to official data published this morning. 

However, a statistical error from the Office of National Statistics means inflation has effectively stayed the same. On a monthly basis, CPI rose by 0.2% in May 2025, compared with a rise of 0.3% in May 2024. 

Newspage spoke to financial experts who said borrowers have been “dealt a crippling blow” and it “kills off any hopes of a base rate cut tomorrow”.

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said “inflation remains stubbornly above target”.
 
She added: "Inflation remains stubbornly above target and core pressures persist. With GDP contracting and oil prices rising amid geopolitical tensions, the risk of stagflation is very real. The Bank of England (BoE) is likely to hold rates tomorrow, meaning borrowers may be waiting longer for any kind of relief."

Harry Mills, Director at Oku Markets, fears “stagflation” is a very real prospect.

He continued: "The UK inflation rate held steady at 3.4% in May, its highest level since February 2024. Remember the ONS recently announced that April's reported 3.5% was overstated and should have been released at 3.4%, so there is a pinch of salt to be taken here. 

"The important services inflation level dipped from 5.4% to 4.7%, which will be well-received by the Bank of England, whose Monetary Policy Committee meet tomorrow to set interest rates. However, inflation remains sticky and well above the BoE's 2% target. With GDP having contracted in April and consumers and businesses facing a raft of tax rises, the picture of stagflation is building. 

"The BoE faces pressure to tackle persistently high inflation by holding rates higher, but in doing so, it suppresses economic activity, making the growth outlook worse. The pound has lifted slightly on the inflation data, but future prospects are uncertain in the face of a gloomy economic outlook."

Chris Barry, Director at Thomas Legal, agreed, adding: “Inflation remains high and the outlook isn’t good with the potential of rising oil prices sending it back up. Interest rates in the UK will most certainly hold tomorrow and the longer term outlook will be higher for longer. GDP may continue to contract, which puts the UK in a scary stagflation era.”

Ben Perks, Managing Director at Orchard Financial Advisers, said it was bad news for borrowers.

He continued: "Enervated borrowers will have to slog it out for a while longer. They have been dealt a crippling blow this morning as inflation is still high, at 3.4%. This kills off any hopes of a base rate cut tomorrow. 

“After this morning's data, the ever cautious Monetary Policy Committee will resort to their usual ‘wait and see’ tactics and hold the base rate. The MPC really need to lift their heads from the data and look at the struggling borrowers that they are duty bound to serve and support.”

Tony Redondo, Founder at Cosmos Currency Exchange, fears the “worst is yet to come”.

He added: "Whilst the headline figure will allow the Bank of England to hold rates unchanged tomorrow and bring relief to Downing Street, the worst is yet to come. Services (over 75% of the UK economy) inflation remains sticky at 5.3%, driven by 4.3% wage growth. 

"Add rising energy prices and fiscal measures like the employer’s NICs and minimum wage increases, and CPI could hit 3.8% by Q3. The Bank of England aims for 2% by 2026–27, but structural issues and trade frictions may complicate this. Upside risks linger."

Riz Malik, Director at R3 Wealth, believes rising petrol prices over the next few weeks will mean it's a struggle to keep control of inflation.

He said: "With tensions escalating in the Middle East, we could see prices increasing at the pumps in a matter of weeks. If this happens we could move even further away from the 2% inflation target. We have all seen the impact of rising energy costs on the cost of living over the last few years. We seem to be moving from one period of uncertainty to the next."

 

14 responses from the Newspage community

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Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
Inflation remains stubbornly above target and core pressures persist. With GDP contracting and oil prices rising amid geopolitical tensions, the risk of stagflation is very real. The Bank of England is likely to hold rates tomorrow, meaning borrowers may be waiting longer for any kind of relief.
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Chris Barry
Director at Thomas Legal
Inflation remains high and the outlook isn’t good with the potential of rising oil prices sending it back up. Interest rates in the UK will most certainly hold tomorrow and the longer term outlook will be higher for longer. GDP may continue to contract, which puts the UK in a scary stagflation era.
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Editor
Ben Perks
Managing Director at Orchard Financial Advisers
Enervated borrowers will have to slog it out for a while longer. They have been dealt a crippling blow this morning as inflation is still high, at 3.4%. This kills off any hopes of a base rate cut tomorrow. After this morning's data, the ever cautious Monetary Policy Committee will resort to their usual ‘wait and see’ tactics and hold the base rate. The MPC really need to lift their heads from the data and look at the struggling borrowers that they are duty bound to serve and support.
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Harry Mills
Director at Oku Markets
The UK inflation rate held steady at 3.4% in May, its highest level since February 2024. Remember the ONS recently announced that April's reported 3.5% was overstated and should have been released at 3.4%, so there is a pinch of salt to be taken here. The important services inflation level dipped from 5.4% to 4.7%, which will be well-received by the Bank of England, whose Monetary Policy Committee meet tomorrow to set interest rates. However, inflation remains sticky and well above the BoE's 2% target. With GDP having contracted in April and consumers and businesses facing a raft of tax rises, the picture of stagflation is building. The BoE faces pressure to tackle persistently high inflation by holding rates higher, but in doing so, it suppresses economic activity, making the growth outlook worse. The pound has lifted slightly on the inflation data, but future prospects are uncertain in the face of a gloomy economic outlook.
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Editor
Craig Fish
Director at Lodestone Mortgages
Inflation holding steady at 3.4% year-on-year, but a 0.2% rise in May shows inflationary pressures haven’t fully disappeared. Core inflation remains sticky with the potential to increase, keeping the Bank of England firmly in wait-and-see mode. Hopes of an early rate cut are fading fast. Borrowers may be waiting a while for another base rate cut.
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Rohit Kohli
Director at The Mortgage Stop
Inflation has held firm at elevated levels, adding more pressure on consumers and casting fresh doubt on the government’s handling of the economy. With geopolitical tensions in the Middle East driving up oil prices, inflationary pressures are unlikely to ease anytime soon. The risk now is that inflation starts heading in the wrong direction again.
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Michelle Lawson
Director at Lawson Financial
After the miscalculations of the last data, inflation has technically not moved. Good news? Kind of, as it at least hasn’t gone up. Bad news? Yes, as it is likely to mean Threadneedle Street will now leave rates on hold tomorrow. Their standard ‘wait and see…’ phrasing will no doubt be used so don’t spend the anticipated savings yet.
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Tony Redondo
Founder at Cosmos Currency Exchange
Whilst the headline figure will allow the Bank of England to hold rates unchanged tomorrow and bring relief to Downing Street, the worst is yet to come. Services (over 75% of the UK economy) inflation remains sticky at 5.3%, driven by 4.3% wage growth. Add rising energy prices and fiscal measures like the employer’s NICs and minimum wage increases, and CPI could hit 3.8% by Q3. The Bank of England aims for 2% by 2026–27, but structural issues and trade frictions may complicate this. Upside risks linger.
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Editor
Scott Gallacher
Director at Rowley Turton
More bad news for Rachel Reeves — and for the country. Today’s inflation figure of 3.4%, while slightly down on last month, remains well above the Bank of England’s 2% target. And with GDP contracting, it’s a potentially toxic mix for the economy, with stagflation now a very real risk
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Riz Malik
Independent Financial Adviser at R3 Wealth
With tensions escalating in the Middle East, we could see prices increasing at the pumps in a matter of weeks. If this happens we could move even further away from the 2% inflation target. We have all seen the impact of rising energy costs on the cost of living over the last few years. We seem to be moving from one period of uncertainty to the next.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
The latest inflation figures will further fuel the fires of caution at the Bank of England and cement a rate hold decision tomorrow. The reprieve on mortgage rates will have to wait.
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Rob Mansfield
Independent Financial Advisor at Rootes Wealth Management
Inflation edging down despite tariffs and tax rises is encouraging, but it probably hasn't fallen enough to convince the Bank of England to cut interest rates again. It highlights the delicate tightrope the Bank has to walk whilst the government ploughs ahead with greater spending.
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Harps Garcha
Director at Brooklyns Financial
With inflation numbers remaining stagnant and a potential increase predicted by the Bank of England between July and September, a reduction in the base interest rate appears unlikely in the near future. Combined with last month's GDP figures, this suggests the economy may be entering a period of stagflation, which could negatively impact both the overall economy and mortgage borrowers.
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David Stirling
Independent Financial Adviser at Mint Wealth
The economic outlook remains fragile, and the UK continues to flirt with stagflation. The slight dip in CPI gives the Bank of England some breathing room, however rate cuts now look increasingly inevitable this summer. With weak growth, stubborn inflation and cautious consumers, coupled with ongoing geopolitical turmoil, the risk of stagflation is very real.