Today’s inflation figures may not have surprised the market, but they’ll still be shaping strategy across portfolios. With CPI holding steady at 3.4% and the Bank of England’s rate decision due tomorrow, asset managers are once again navigating a delicate balance between inflation resilience and rate expectations.
Last month’s quiet revision to the CPI figure from 3.5% to 3.4% has raised some concerns around data reliability, but the focus now is firmly on the policy response. A stickier inflation print could delay rate cuts and sustain volatility across fixed income and equity markets alike. For managers, it’s a reminder that positioning around duration, defensiveness and inflation sensitivity remains as critical as ever. Financial professionals have their say…
Richard Pike, chief sales and marketing officer at Phoebus, said:
“The drop in inflation today may reignite some hope of a further interest rate cut by the Bank of England tomorrow, which many expected we wouldn’t see until later in the year. While policymakers are likely to remain cautious, particularly with wage growth still elevated, today’s figures offer a welcome sign that inflationary pressures are continuing to ease. For lenders and borrowers, that could translate into greater confidence in the months ahead, especially for those approaching the end of fixed-rate deals or considering entering the market.
“But volatility is still a key feature of the economic landscape and the sector must continue to prioritise resilience. Lenders need the flexibility to adapt quickly to shifts in rates and sentiment, which means having the right systems and processes in place to support brokers, manage risk and deliver a seamless customer experience.”
Richard Flax, Chief Investment Officer at Moneyfarm, said:
“UK headline inflation eased as expected in May 2025, falling to 3.4% from 3.5% in April. Notably, the ONS has acknowledged an error in the April reading, caused by faulty data from the Department for Transport, which led to a 0.1 percentage point overstatement. While the ONS has opted not to revise the figure, the incident has raised broader concerns about the reliability of UK economic data.
“Looking at the latest release, the UK remains well behind the EU in bringing inflation under control. Core CPI, which excludes food and energy, stood at 3.5%, still around 1.5 percentage points above the Bank of England’s 2% target. While the direction of travel for interest rates is downward, the Bank remains cautious, with consensus pointing to a wait-and-see approach. Households continue to feel the squeeze on both sides – from persistent price pressures and elevated borrowing costs.
“The UK still has some distance to cover before the Bank of England can ease more decisively. Today’s data does very little to influence the BoE from its current stance.“
Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM), said:
“Following last month’s blockbuster CPI print, this morning’s data shows that inflation is still uncomfortably high. Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England’s concern about easing rates too quickly. Today’s data will not change the Bank’s decision tomorrow – where rates are almost certain to stay unchanged after a 25 bp cut last month.
“The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling. A deterioration in the labour market should, in theory, put downward pressure on inflation, but until there are clear signs of this in the hard data, the Bank should be careful not to claim victory over inflation quite yet, not least because of the uncertain geopolitical climate.”
Jeremy Batstone-Carr, European Strategist Raymond James Investment Services, said:
“Today’s data confirms that UK headline consumer price inflation held broadly steady last month. April’s spike can be partly ascribed to an increase in vehicle road tax and an early Easter which pulled forward typically volatile airfares and package holiday prices. While today’s data confirms an unwinding of the former, as well as the favourable impact of falling petrol and house rental prices, these have been offset by increases in clothing and food prices.
“Underlying inflation also dropped slightly from April’s 3.8% to 3.5%, due again in large part to Easter’s timing. The focus here is on the sharp drop in the Bank of England’s closely watched and hitherto sticky services price pressures, from 5.4% in April to 4.7% in May, in line with the Bank of England’s 4.7% forecast.
“The Bank’s Monetary Policy Committee is convening to discuss interest rates and will likely retain its ‘wait-and-see’ approach, indicating that the labour market is softening and that economic activity has lost some of its first quarter zing. Although the Committee will note these developments against a backdrop of ongoing international uncertainty surrounding US trade policy, the next scheduled policy meeting is not until August 7th, allowing for ample time to observe how price pressures evolve before making a decision to cut rates again.”
David Morrison, Senior Market Analyst at FCA-regulated fintech and financial services provider, Trade Nation, said:
“The latest ONS figures for May 2025 show that UK inflation eased slightly, with the Consumer Prices Index (CPI) rising by 3.4 percent in the 12 months to May, down from 3.5 percent in April and broadly in line with market expectations. Core inflation, which excludes volatile food and energy prices, also fell to 3.5 percent from 3.8 percent. The downward movement was driven by lower airfares and petrol prices, while smaller upward pressures came from clothing, furniture, and some food items. The dip marks a continuation of the cooling trend seen earlier in the year and reinforces expectations that the Bank of England could begin cutting interest rates as soon as August
“It’s a welcome drop from the previous readings, although both Headline and Core CPI are still higher than they were at the beginning of the year. Sterling rallied on the news, as the consensus market expectation was that headline inflation (which includes food and energy) would come in a touch softer than it did. But it changes nothing as far as tomorrow’s rate decision from the Bank of England is concerned. The Bank is expected to keep rates unchanged again.”
Douglas Grant, Group CEO of Manx Financial Group, said, Douglas Grant, Group CEO of Manx Financial Group, said:
“UK inflation fell to 3.4%, coming on the heels of the government’s decision to provide additional financial support to UK SMEs as part of its recent Spending Review. While this might bring hope to some businesses and consumer segments, the SME sector is not out of the woods yet as the cost-of-living squeeze continues domestically and geopolitical instability accelerates.
“UK businesses must rethink their financial frameworks to strengthen stability and resilience. Regular budget reviews, agile supply chains, and strategic bulk purchasing can help offset rising costs, while embracing new technologies and streamlining operations will drive productivity and efficiency gains.
“Recent research from Manx Financial Group reveals that nearly a third of UK small and medium sized enterprises have had to stop or pause an area of their business because of a lack of finance over the last two years. 38% of SMEs also expect stagnant growth in the year ahead – up from 25% in 2024, underscoring the need for a more stable and inclusive lending environment. SMEs face a rapidly shifting landscape shaped by economic, political, and technological changes.
“Business leaders must reassess strategies to guide SMEs through these challenges and opportunities. To build resilience, SMEs should capitalise on opportunities for monetary easing and secure affordable credit to adapt and grow. Supporting this dynamic will be crucial to sustaining recovery and ensuring SMEs remain at the heart of the UK economy.”
Derrick Dunne, CEO of YOU Asset Management, said:
“Hopes of a fall dashed as the latest inflation data shows little change from last month, underscoring just how noisy the economic picture remains. A steady inflation rate for May, with CPI holding at 3.4%, after April’s correction, suggests that price pressures are holding firm as we move into the summer.
“While stability is obviously preferable to another sharp rise, the headline rate remains well above the 2% target, and inflation is still expected to edge higher over the coming months, potentially peaking around 3.7% before gradually easing again. Energy prices, regulated costs, and wage growth will all play key roles in shaping this trajectory.
“With the Bank’s rate decision a little over 24 hours away, today’s figures show the path to lower inflation will continue to be bumpy. For investors, the message is clear: volatility may persist, and it’s crucial to stay diversified and focused on long-term goals. Consulting a financial planner can help ensure you’re prepared for whatever comes next.”
