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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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Gail’s backer plots rare move with bid for steak chain Flat Iron

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Gail's backer plots rare move with bid for steak chain Flat Iron

A backer of Gail’s bakeries is in advanced talks to acquire Flat Iron, one of Britain’s fastest-growing steak restaurant chains.

Sky News has learnt that McWin Capital Partners, which specialises in investments across the “food ecosystem”, has teamed up with TriSpan, another private equity investor, to buy a large stake in Flat Iron.

Restaurant industry sources said McWin would probably take the largest economic interest in Flat Iron if the deal completes.

They added that the two buyers were in exclusive discussions, with a deal possible in approximately a month’s time.

The valuation attached to Flat Iron was unclear on Sunday.

Flat Iron launched in 2012 in London’s Shoreditch and now has roughly 20 sites open.

The chain is solidly profitable, with its latest accounts showing underlying profits of £5.7m in the year to the end of August.

It already has private equity backing in the form of Piper, a leading investor in consumer brands, which injected £10m into the business in 2017.

Flat Iron was founded by Charlie Carroll, who retains an interest in it, but the company is now run by former Byron restaurant boss Tom Byng.

Houlihan Lokey, the investment bank, has been advising Flat Iron on the process.

McWin has reportedly been in talks to take full control of Gail’s while TriSpan’s portfolio has included restaurant operators such as the Vietnamese chain Pho and Rosa’s, a Thai food chain.

A spokesman for McWin declined to comment.

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AA owners line up banks to steer path towards £4.5bn exit

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AA owners line up banks to steer path towards £4.5bn exit

The owners of the AA, Britain’s biggest breakdown recovery service, are lining up bankers to steer a path towards a sale or stock market listing next year which could value the company at well over £4bn.

Sky News has learnt that JP Morgan and Rothschild are in pole position to be appointed to conduct a review of the AA’s strategic options following a recovery in its financial and operating performance.

The AA, which has more than 16 million customers, including 3.3 million individual members, is jointly owned by three private equity firms: Towerbrook Capital Partners, Warburg Pincus and Stonepeak.

Insiders said this weekend that any form of corporate transaction involving the AA was not imminent or likely to take place for at least 12 months.

They added that there was no fixed timetable and that a deal might not take place until after 2026.

Nevertheless, the impending appointment of advisers underlines the renewed confidence its shareholders now have in its prospects, with the business having recorded four consecutive years of customer, revenue and earnings growth.

A strategic review of the AA’s options is likely to encompass an outright sale, listing on the public markets or the disposal of a further minority stake.

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Stonepeak invested £450m into the company in a combination of common and preferred equity, in a transaction which completed in July last year.

That deal was undertaken at an enterprise valuation – comprising the AA’s equity and debt – of approximately £4bn, the shareholders said at the time.

Given the company’s growth and the valuation at which Stonepeak invested, any future transaction would be unlikely to take place with a price of less than £4.5bn, according to bankers.

The AA, which has a large insurance division as well as its roadside recovery operations, remains weighed down by a substantial – albeit declining – debt burden.

Its most recent set of financial results disclosed that it had £1.9bn of net debt, which it is gradually paying down as profitability improves.

AA owners over the years

The company has been through a succession of owners during the last 25 years.

In 1999, it was bought by Centrica, the owner of British Gas, for £1.1bn.

It was then sold five years later to CVC Capital Partners and Permira, two buyout firms, for £1.75bn, and sat under the corporate umbrella Acromas alongside Saga for a decade.

The AA listed on the London Stock Exchange in 2014, but its shares endured a miserable run, being taken private nearly seven years later at little more than 15% of its value on flotation.

Under the ownership of Towerbrook and Warburg Pincus, the company embarked on a long-term transformation plan, recruiting a new leadership team in the form of chairman Rick Haythornthwaite – who also chairs NatWest Group – and chief executive Jakob Pfaudler.

For many years, the AA styled itself as “Britain’s fourth emergency service”, competing with fierce rival the RAC for market share in the breakdown recovery sector.

Founded in 1905 by a quartet of driving enthusiasts, the AA passed 100,000 members in 1934, before reaching the one million mark in 1950.

Last year, it attended 3.5 million breakdowns on Britain’s roads, with 2,700 patrols wearing its uniform.

The company also operates the largest driving school business in the UK under the AA and BSM brands.

In the past, it has explored a sale of its insurance arm, which also has millions of customers, at various points but is not actively doing so now.

By recruiting a third major shareholder last, the AA mirrored a deal struck in 2021 by the RAC.

The RAC’s then owners – CVC Capital Partners and the Singaporean state fund GIC – brought the technology-focused private equity firm, Silver Lake, in as another major investor.

A spokesman for the AA declined to comment on Saturday.

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US-EU trade war fears reignite as Europe strikes back at Trump’s threat

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US-EU trade war fears reignite as Europe strikes back at Trump's threat

Fears of a US-EU trade war have been reignited after Europe refused to back down in the face of fresh threats from Donald Trump.

The word tariff has dominated much of the US president’s second term, and he has repeatedly and freely threatened countries with them.

Money blog: Trump sends message to UK on energy bills

This included the so-called “liberation day” last month, where he unleashed tariffs on many of his trade partners.

On Friday, after a period of relative calm which has included striking a deal with the UK, he threatened to impose a 50% tariff on the EU after claiming trade talks with Brussels were “going nowhere”.

The US president has repeatedly taken issue with the EU, going as far as to claim it was created to rip the US off.

However, in the face of the latest hostile rhetoric from Mr Trump’s social media account, the European Commission – which oversees trade for the 27-country bloc – has refused to back down.

EU trade chief Maros Sefcovic said: “EU-US trade is unmatched and must be guided by mutual respect, not threats.

“We stand ready to defend our interests.”

President Donald Trump speaks to reporters after signing executive orders regarding nuclear energy in the Oval Office of the White House, Friday, May 23, 2025, in Washington, as Commerce Secretary Howard Lutnick and Defense Secretary Pete Hegseth listen. (AP Photo/Evan Vucci)
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Donald Trump speaks to reporters in the Oval Office on Friday

Fellow EU leaders and ministers have also held the line after Mr Trump’s comments.

Polish deputy economy minister Michal Baranowski said the tariffs appeared to be a negotiating ploy, with Dutch deputy prime minister Dick Schoof said tariffs “can go up and down”.

French trade minister Laurent Saint-Martin said the latest threats did nothing to help trade talks.

He stressed “de-escalation” was one of the EU’s main aims but warned: “We are ready to respond.”

Mr Sefcovic spoke with US trade representative Jamieson Greer and commerce secretary Howard Lutnick after Mr Trump’s comments.

Mr Trump has previously backed down on a tit-for-tat trade war with China, which saw tariffs soar above 100%.

Read more:
Trump accepts $400m plane from Qatar
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US and China end trade war

Sticking points

Talks between the US and EU have stumbled.

In the past week, Washington sent a list of demands to Brussels – including adopting US food safety standards and removing national digital services taxes, people familiar with the talks told Reuters news agency.

In response, the EU reportedly offered a mutually beneficial deal that could include the bloc potentially buying more liquefied natural gas and soybeans from the US, as well as cooperation on issues such as steel overcapacity, which both sides blame on China.

Stocks tumble as Trump grumbles

Major stock indices tumbled after Mr Trump’s comments, which came as he also threatened to slap US tech giant Apple with a 25% tariff.

The president is adamant that he wants the company’s iPhones to be built in America.

The vast majority of its phones are made in China, and the company has also shifted some production to India.

Shares of Apple ended 3% lower and the dollar sank 1% versus the Japanese yen and the euro rose 0.8% against the dollar.

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