Market expectations that the Bank of England will raise rates at its meeting tomorrow are now close to zero, according to LSEG.

Nearly 30% of participants predict no increase in rates for the next year.

Food inflation was 2.2% over 12 months – the lowest level for a year and a half.

Upward pressure came from airfares and petrol costs.

AJ Bell head of financial analysis Danni Hewson says: “It would be churlish not to at least quietly celebrate the fact that prices haven’t risen by as much as many economists had feared. 

“May’s inflation figures could give some hope to UK households that the dreaded cost of living squeeze might not be as intense as feared.

“Food prices actually fell by 0.1% between April and May, and year-on-year food inflation was at the lowest level it’s been since December 2024.

“Airfares and petrol prices shot up as the price of a barrel of Brent crude bobbed around $100 for most of the month, but since the announcement of a US-Iran deal the price has plummeted and today it’s below $80 a barrel.”

Hewson adds: “Today’s numbers will be scrutinised by the Bank of England’s rate setters when they gather tomorrow, and market expectation is near 100% that there will be no rate rise at this meeting. 

“There’s even increasing speculation that any hike might be off the table for the rest of the year.

“But it’s not all good news, especially when you consider that before the start of the Iran war inflation had been expected to be back to the Bank’s 2% target by now and many were expecting interest rates to be cut at least once this year.”

Just Mortgages and Spicerhaart chief executive John Phillips says:

“Inflation data springs yet another surprise, remaining stable with lower food prices doing the heavy lifting to defy widespread expectations of an increase. 

“This however is hugely welcome news – particularly ahead of the MPC decision tomorrow. 

“Ahead of that decision, we do have news of a supposed US-Iran peace deal which is ready to be signed.”

Despite scepticism over how successful this will be, it is positive news that has calmed the markets and oil prices are already reflecting this, he says. 

Phillips adds:  “As swap rates continue to stabilise and react favourably to this news, we absolutely need to be shouting about this to our clients. 

“We have already been seeing movements from lenders across the market, proving that there is plenty of money out there and lenders ready and willing to lend. 

“It’s up to us to be proactive, to really engage with our customer base and give them the guidance they need to navigate a changing market.”

LSL chief distribution officer Emma Hollingworth says: “A steady inflation reading gives the Bank of England the breathing room it needed.”

“If inflation were on the rise, the Monetary Policy Committee (MPC) would have felt pressure to follow the Bank of Japan and the European Central Bank in raising rates this week. 

“Instead, we expect the MPC to hold tomorrow, judging that the risk to a fragile economy of higher rates is simply too great.”

But she says: “The situation in the Middle East remains the biggest threat to the UK’s mortgage market.

“What happens next depends on whether the ceasefire between the US and Iran holds. 

“If the Strait of Hormuz stays disrupted, global inflationary pressure will continue to build, and the threat of rising rates will return.

“For borrowers, today’s data means fixed-rate mortgage pricing is likely to stay broadly stable in the short term. 

“But anyone on a standard variable rate or approaching a remortgage window should act quickly as the situation can change fast.”