Inflation eased to an annual rate of 3.4% in May, according to official figures released this morning, but the Bank of England is widely expected to leave interest rates on hold despite that.

The Office for National Statistics (ONS) reported the consumer prices index measure eased from 3.5% the previous month.

It said that despite upwards pressure on prices from food and clothing, the decline was driven by falls in airfare prices following Easter.

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The headline figure also reflected a small downwards correction to ONS inflation data ahead of April related to vehicle excise duty calculations.

ONS acting chief economist Richard Heys said: “A variety of counteracting price movements meant inflation was little changed in May.

FOOD INFLATION AT 15-MONTH HIGH

James Sillars

Business and economics reporter

@SkyNewsBiz

Today’s headline inflation number suggests a flat picture for price growth overall.

But there is one stat that households will already be familiar with after a visit to the supermarket.

A jump in some food prices has been noticeable, with the ONS flagging a leap in its food and non-alcoholic drinks measure of inflation to a 15-month high.

Why the rise? Chocolate has spiked significantly this year due to a cocoa shortage blamed on poor harvests. Meat, particularly beef, has shot up on high global demand and rising costs.

The food and non-alcoholic drinks category has been on the rise for five months in a row. But the good news is that high rates of sales promotions by chains – discounts – are helping keep a lid on overall grocery bills.

“Air fares fell this month, compared with a large rise at the same time last year, as the timing of Easter and school holidays affected pricing. Meanwhile, motor fuel costs also saw a drop.

“These were partially offset by rising food prices, particularly items such as chocolates and meat products. The cost of furniture and household goods, including fridge freezers and vacuum cleaners, also increased.”

Forecasts suggest that inflation will tick up over the second half of the year – with effects from Donald Trump’s trade war and rising commodity costs amid events in the Middle East among the concerns ahead for the Bank of England.

It has adopted a “careful” and “gradual” approach to interest rate cuts as a result.

That is despite weakening employment data, reported earlier this month, which showed a tick up in the official jobless rate and a 109,000 reduction in payrolled employment.

Other elements of the inflation data are also supportive of an argument for rate cuts.

Core CPI inflation – a measure that strips out volatile elements such as energy and food – eased from 3.8% in April to 3.5% while services inflation tumbled sharply to 4.7% from 5.4% the previous month.

Nevertheless, the Bank is widely expected to leave Bank rate on hold on Thursday following the June meeting of its rate-setting committee.

LSEG data showed after the inflation data that financial markets currently see two more interest rate cuts by the year’s end.

Risks to prices ahead will come from a sustained Israel-Iran war pushing up oil and gas prices but there have been different views among policymakers over whether the trade war will result in inflation or not.

As such, the minutes of the Bank’s meeting will be closely scrutinised for hints on whether rate cut caution is easing.

Kellogg’s cornflakes, Bonne Maman jam, Kent Crisps, Brewdog beer… these are the items on the supermarket shelves in front of me. 

I’m in a branch of Azbuka Vkusa (or ‘Alphabet or Taste’) in Moscow, where the aisles look remarkably like those in a Tesco, Sainsbury’s or Waitrose.

Russia is the most sanctioned economy in the world, but here we are, more than three years into its supposed isolation, and the shelves are still stocked with Western goods.

So how come?

Many of the products on sale here are what are called ‘parallel imports’. That means they’ve entered Russia via third countries, without the trademark owner’s permission.

Russia legalised the practice soon after its invasion of Ukraine to sidestep sanctions and to shield consumers from the impact of a mass exodus of foreign brands.

So despite companies pulling out of Russia, their products can often still be found here.

Take Coca-Cola for example. It stopped selling to Russia and ceased operations here in 2022, but there’s no problem buying its drinks.

Next to each other on the supermarket shelf, I found one can from France, one from Poland, one from Iraq and even a bottle from the UK. “Please recycle me,” the cap hopefully implores.

Like other businesses that say they have not authorised imports of their brands into Russia, there’s little Coca-Cola can do about it. The company declined a request to comment.

This specifically isn’t sanctions-busting, since food and drink are generally exempt from the restrictions imposed by Britain and the EU. It is, however, an example of how trade bans (self-imposed, in this case) can be circumvented. And the very same practice is being used on some sanctioned goods, like luxury cars.

At Frank Auto, a glitzy car showroom in northwest Moscow, there’s a Porsche Cayenne Coupe, a Mercedes EQE and a BMW X5. All are under two years old, i.e. younger than the sanctions regime that was designed to keep them out.

“Germany officially does not know that we import cars for clients from Russia,” Irina Frank, the dealership owner, tells me unashamedly.

“It’s done through multiple moves. An order is placed, for example, from Turkey, then from Turkey it goes to Armenia, and from Armenia we deliver the car to Russia.”

She explains that the cars are imported to order, because of the cost involved and the uncertainty.

“Now, every transaction is checked, and there were cases when you even lost all the money, and cannot take the car out,” she says.

But it’s clearly still possible. In February, Irina sold a Ferrari Purosangue to a customer who paid 130 million roubles (1.43 million euros) – 30% more than what it would have cost without sanctions, she says.

And she even claims to have sold Range Rovers from Britain.

“Russia, you know, is a special country. Our people really love everything that is the most expensive, the coolest, in the maximum configuration,” she adds.

Sky News has reported extensively on how British and European cars are still entering Russia despite sanctions. But this is the first time we’ve spoken to some of those who have imported them.

In a car park in front of Moscow’s Belarussky train station, we meet Ararat Mardoyan, who owns a car brokerage firm called Autodegustator. He says he imported dozens of British and European cars into Russia during the first two years of the war, including his own vehicle.

His black Volkswagen took six months to arrive from Germany, after being shipped via Belgium, Georgia, Armenia and Iran.

“You’re not doing anything wrong,” he insists, when I ask if he’s helping Russia avoid sanctions.

He refers to the Eurasian Economic Union as justification – a customs union which Russia shares with Armenia, Belarus, Kazakhstan and Kyrgyzstan.

“It’s like [the] European Union,” he argues.

“If the good hits Kazakhstan, for example, it’s already not only a Kazakh product, it’s already a product of customs union.”

I suggest that such moves are not in the spirit of sanctions, and that some would question the morality of it.

“I don’t think it’s something from the sphere of immorality. It’s business,” he says. “People have to work and survive.”

Ararat stopped importing European cars at the start of last year because of increased risks and decreasing profits, citing how he had to scrap an entire fleet of Range Rovers after their diagnostic systems were blocked as soon as they were switched on.

But he doesn’t believe the practice will ever cease, no matter how pricey and problematic it becomes.

“People who want to drive Ferrari,” he says, “they always have the money, and where there is the demand, there will always be supply.”

“This is like a globalised world. I don’t believe there’s any chance of isolating Russia. It’s not possible.”

The government will announce another delay to the beleaguered HS2 project on Wednesday, saying the latest target is now impossible.

Sky News understands that Transport Secretary Heidi Alexander will announce that the London to Birmingham line will no longer be ready to open by 2033.

It is not clear what the new target date will be.

Ms Alexander is expected to blame the Tories for a “litany of failure” that drove the costs up by £37bn since 2012, when the high-speed rail network was approved by the coalition government.

As first reported by The Telegraph, she is also expected to raise concerns that taxpayers may have been defrauded by subcontractors and pledge that “consequences will be felt”.

Ms Alexander’s announcement will come alongside the findings of two reviews into HS2, looking into what went wrong and how and when to construct the rest of it.

She will tell MPs: “Billions of pounds of taxpayers’ money has been wasted by constant scope changes, ineffective contracts and bad management.

“It’s an appalling mess. But it’s one we will sort out.”

HS2 was originally planned to cut journey times and improve connectivity between London and the Midlands and the North.

It was given the go-ahead in 2012 with the aim of operating by 2026, but has since been mired in setbacks and spiralling costs.

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The initial plan was to build the first phase connecting London and Birmingham, followed by adding two branches to Manchester and Leeds.

However, Boris Johnson scrapped the leg to Leeds in 2021, while Rishi Sunak pulled the plug on the remainder of the second phase to Manchester in 2023 because of spiralling costs.

The latest time scales give an opening date of between 2029 and 2033 for the London to Birmingham leg, which is under construction.

The most recent cost estimate was £49bn to £56.6bn (in 2019 prices), according to a House of Commons research briefing.

The original bill for the entire project at 2009 prices, when the idea was first conceived, was supposed to be £37.5bn.