Inflation in the UK eased to 3.4% last month after rises in the cost of food and furniture were offset by a steep fall in air fares and petrol prices.
May’s decline in the consumer prices index (CPI), down from the official figure of 3.5% for April, complicates the Bank of England’s interest rates decision on Thursday, although policymakers are still almost certain to hold interest rates at 4.25%.
The Office for National Statistics (ONS) said its measure of core inflation, which excludes volatile items such as energy, food and alcohol, rose by 3.5% in the last year, down from 3.8%.
City economists had correctly predicted the fall in CPI in May to 3.4%. The Bank’s target is 2% and it is likely to remain circumspect about accelerating the pace of interest rate cuts after the reduction in May’s CPI, which was largely due to falls in the price of petrol and diesel, which brought down transport costs.
Services inflation, which has remained high over recent years, began to slow more rapidly, down from 5.4% to 4.7%. The Bank has resisted making steep cuts to interest rates while services inflation has remained sticky.
Pressure has increased on the central bank to cut the cost of borrowing, after recent data showed the economy has slowed. Wages growth fell and unemployment increased in the February to April quarter, while the economy shrank in April.
The ONS said earlier this month that it had overestimated its CPI reading for April by about 0.1 percentage point because of an error that meant the effect of higher car tax bills was exaggerated. It left the original reading in place as the official figure for that month but said it would use the correctly weighted data in future calculations.
Monica George Michail, an associate economist at the National Institute of Economic and Social Research, said inflation was likely to remain above 3% for the rest of the year amid persistent wage growth and the inflationary effects from higher government spending.
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“Additionally, the current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year,” she said.
