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UK inflation has eased to 2% – increasing the prospect of an interest rate cut within months.

The consumer prices index (CPI) rate for the year to May was confirmed by the Office for National Statistics (ONS) on Wednesday.

The figure indicates that prices are still rising, but at the slowest pace since July 2021.

The ONS said the drop was largely down to falling food prices, while the cost of motor fuel rose slightly.

Officials added that core inflation, which strips out volatile elements such as food and energy, fell to 3.5% in May, in line with expectations.

However, some commentators expressed concern that services inflation – which covers sectors such as the hospitality industry – had only fallen from 5.9% in April to 5.7% in May.

Financial markets had previously priced in expectations of an interest rate cut in August – but on Wednesday that shifted towards a reduction being made in September instead.

The latest figures come following a sustained period of high inflation in the UK, which peaked at 11.1% in October 2022 – the highest level since 1981.

The Bank of England is due to announce its latest decision on interest rates on Thursday.

The Bank has been steadily increasing rates since December 2021 as part of efforts to bring down inflation – which soared in the wake of the COVID pandemic and amid the war in Ukraine to its target of 2%.

Most analysts expect rates to be held at 5.25% for the seventh time in a row this week, amid concerns that inflation could tick up again during the second half of the year.

The prospects of a rate cut this week were also dealt a blow last month when wage growth – a driver of inflation – came in higher than expected.

Inflation eased to 2.3% in April, although the fall was not as big as economists and the Bank of England had forecast.

Today’s inflation figures and Thursday’s interest rate decision are likely to be the final major economic announcements to be made before the general election next month.

‘Stage set’ for rate cut?

The Confederation of British Industry’s principal economist Martin Sartorius said the fall in inflation would be “welcome news to households” although he said many were still feeling the pinch.

He added: “Today’s data sets the stage for the [Bank’s] Monetary Policy Committee to cut interest rates in August, in line with our latest forecast’s expectations.

“However, rate-setters will still need to weigh the fall in headline inflation against signs that domestic price pressures, such as elevated pay growth, are proving slower to come down.

“This means that they are likely to move cautiously beyond August to avoid putting further upward pressure on inflation, especially as the growth outlook improves at home and geopolitical tensions remain heightened.”

Services inflation concern

Ruth Gregory, from research firm Capital Economics, said Wednesday’s figures “probably won’t be enough” to persuade the Bank to cut rates on Thursday.

She added: “And with services inflation nudging down only slightly, this leaves our forecast that the Bank will cut rates for the first time in August looking a little shakier.”

Rob Wood, from Pantheon Macroeconomics, agreed there was a risk that the Bank’s first rate cut of the year could now be delayed until September.

He said: “The bad news is services inflation has proved remarkably persistent, slowing only to 5.7% in May from 6.1% in February, a period when large base effects should have weighed heavily on the year-over-year inflation rate.

“We’ll need to take a careful look at all the detailed data”.

Meanwhile, Unite‘s general secretary Sharon Graham called on the Bank to cut rates sooner.

She said: “Falling inflation doesn’t mean falling prices. The worst cost of living crisis in generations is still dragging on.

“We need action from the Bank of England on Thursday to begin lowering interest rates and relieve the pressure on hard-pressed homeowners.”

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Inflation drop a ‘significant moment’

Parties clash over figures

Rishi Sunak described the fall in inflation as “great news” in a video posted on social media.

He said: “When I became prime minister, inflation was at 11%. But we took bold action. We stuck to a clear plan and that’s why the economy has now turned a corner.

“So, let’s not put all that progress at risk with Labour.”

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‘Cost of living crisis isn’t over’

Labour’s shadow chancellor Rachel Reeves said: “After 14 years of economic chaos under the Conservatives, working people are worse off.

“Prices have risen in the shops, mortgage bills are higher and taxes are at a 70-year high.”

Liberal Democrat Treasury spokeswoman Sarah Olney said: “The hard truth is that millions of people won’t be feeling any better off today.”

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Hovis and Kingsmill-owners in talks about historic bread merger

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Hovis and Kingsmill-owners in talks about historic bread merger

The owners of Hovis and Kingsmill, two of Britain’s leading bread producers, are in talks about a historic merger amid a decades-long decline in the sale of supermarket loaves.

Sky News has learnt that Associated British Foods (ABF), the London-listed company which owns Kingsmill’s immediate parent, Allied Bakeries, and Hovis, which is owned by investment firm Endless, have been involved in prolonged discussions about a combination of the two businesses.

City sources said this weekend that the talks were ongoing, but that there was no certainty that a deal would be finalised.

Bankers are said to be working with both sides on the talks about a transaction.

A deal could be structured as an acquisition of Hovis by ABF, according to analysts, although details about the mechanics of a merger or the valuations attached to the two businesses were unclear this weekend.

ABF is also said to be exploring other options for the future of Allied Bakeries which do not include a deal with Hovis.

If completed, a merger would unite two of Britain’s best-known ambient food brands, with Allied Bakeries having been founded in 1935 by Willard Garfield Weston, part of the family which continues to control ABF.

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Hovis traces its history back even further, having been created in 1890 when Herbert Grime scooped a £25 prize for coming up with the name Hovis, which was derived from the Latin ‘Hominis Vis’ – meaning strength of man.

Persistent inflation, competition from speciality bread producers and shifting consumer habits towards lower-carb diets have combined to impair the bread industry’s financial health in recent decades.

The impact of the war in Ukraine on wheat and flour prices has been among the factors increasing inflationary pressures on bread producers, according to the most recent set of accounts for Hovis filed at Companies House last year.

The overall UK bakery market is said to be worth about £5bn in annual sales, with the equivalent of 11m loaves being sold each day.

The principal obstacle facing a merger of Allied Bakeries, which also owns the Sunblest and Allinson’s bread brands, and Hovis would reside in its consequences for competition in the UK market.

Warburtons, the family-owned business which is the largest bakery group in Britain, is estimated to have a 34% share of the branded wrapped sliced bread sector in the UK, with Hovis on 24% and Allied on 17%, according to industry insiders.

A merger of Hovis and Kingsmill would give the combined group a larger share of that segment of the market, although one source said Warburtons’ overall turnover would remain larger because of the breadth of its product range.

Nevertheless, reducing the number of major supermarket bread suppliers from three to two would be a test of the Competition and Markets Authority’s approach to such industry-reshaping mergers at a time when the watchdog is under intense government scrutiny.

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In January, the government removed the CMA chairman, Marcus Bokkerink, as part of a push to reorient Britain’s economic regulators around growth-focused objectives.

An industry insider suggested that a joint venture involving the distribution networks of Hovis and Kingsmill was a possible, although less likely, alternative to a full-blown merger of the companies.

They added that a combined group could benefit from up to £50m of cost savings from such a tie-up.

In its interim results announcement this week, ABF said the performance of Allied Bakeries had continued to struggle.

“Allied Bakeries continues to face a very challenging market,” it said.

“We are evaluating strategic options for Allied Bakeries against this backdrop and we expect to provide an update in [the second half of] 2025.”

In a separate presentation to analysts, ABF described the losses at Allied as unsustainable.

The company does not disclose details of Allied Bakeries’ financial performance.

Allied also owns Speedibake, an own-label bread manufacturer.

Hovis has been owned by Endless, a prominent investor in British businesses, since 2020, having previously been owned by Mr Kipling-maker Premier Foods and the Gores family.

At the time of the most recent takeover, High Wycombe-based Hovis employed about 2,700 people and operated eight bakery sites and its own flour mill.

Hovis’s current chief executive, Jon Jenkins, is a former boss of Allied Milling and Baking.

This weekend, ABF and Endless both declined to comment.

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Struggling Aston Martin steers into fresh pay controversy

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Struggling Aston Martin steers into fresh pay controversy

Aston Martin is steering a path towards a twin-pronged pay row with shareholders as it grapples with the impact of President Trump’s tariffs on car manufacturers.

Sky News can reveal that the influential proxy voting adviser ISS is urging investors to vote against both of Aston Martin Lagonda Global Holdings’ remuneration votes at next week’s annual general meeting.

The pay policy vote, which is binding on the company, has attracted opposition from ISS because it proposes significant increases to potential bonus awards to Adrian Hallmark, the company’s new chief executive.

“Concerns are raised regarding the increased bonus maximums, which are built upon competitively[1]positioned salary levels and do not appear appropriate given the company’s recent performance,” ISS said in a report to clients.

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Aston Martin is also facing a meaningful vote against its pay report for last year – which is on an advisory basis only – because of the salaries awarded to Mr Hallmark and other executive directors.

The company’s shares have nearly halved in the last year, and it now has a market value of little more than £660m.

Despite the ISS recommendation, Aston Martin will win the vote by virtue of chairman Lawrence Stroll’s 33% shareholding.

The luxury car manufacturer has had a torrid time as a public company and now faces the headwinds of President Trump’s tariffs blitz.

This week it said it would limit exports to the US to offset the impact of the policy.

Aston Martin did not respond to a request for comment ahead of next Wednesday’s AGM.

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Financial wellbeing platform Mintago lands £6m funding boost

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Financial wellbeing platform Mintago lands £6m funding boost

A financial wellbeing platform which counts the alcohol-free beer producer Lucky Saint among its clients has landed a £6m funding injection from a syndicate of well-known investors.

Sky News understands that Mintago, which was founded in 2019, will announce in the coming days that Guinness Ventures has jointly led the Series A round alongside Seed X Liechtenstein and Social Impact Enterprises.

Mintago, which also counts car rental firm Avis and Northumbrian Police among its customers, aims to help employees save and manage their money more effectively.

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A number of the start-up’s current investors, Love Ventures and Truesight Ventures, are also understood to have reinvested as part of the fundraising.

MINTAGO
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The company, which counts Lucky Saint and Avis among its users, has finalised a Series A funding round

The company was set up by Chieu Cao and Daniel Conti, and claims to offer more salary sacrifice schemes than any other UK provider.

It also provides independent financial advice, a service for finding lost pension pots, retail discounts and GP services.

“We realised that organisations are crying out for the same help we provide their staff,” Mr Conti said.

“The benefits of providing that support impact everyone.

“When a company improves their salary sacrifice benefits engagement, they can save thousands in National Insurance Contributions, but their employees save too, easing the strain on their finances.”

The new capital will be used to develop additional products using artificial intelligence, according to the company.

“Mintago is enabling its customers to become truly people-centric organisations by giving them the tools to support their employees’ financial wellbeing,” Mathias Jaeggi, a partner at Seed X Liechtenstein, said.

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