UK inflation unexpectedly held steady in May, easing pressure on the Bank of England as policymakers prepare to announce their latest interest rate decision this week.
The consumer prices index rose by 2.8% in the year to May, figures from the Office for National Statistics showed, unchanged from April and below economists’ forecasts for an increase to 3.0%
Monthly inflation slowed more sharply than expected, to 0.2% from 0.7% in April. The lower-than-expected reading gave economists more confidence that the Bank’s monetary policy committee will not increase borrowing costs at this week’s meeting or for the rest of the year, particularly after oil prices retreated amid signs of a diplomatic breakthrough between the US and Iran. Sanjay Raja, chief UK economist at Deutsche Bank, said the report would be welcomed by policymakers who want lower rates. “Today’s CPI report will be one for the doves,” he said, noting that headline inflation, core inflation and food prices all came in below expectations.
Thomas Pugh, economist at RSM UK, agreed that the figures “eliminate any lingering chance” of a rate hike at Thursday’s MPC meeting “and will go a long way to taking a hike in July off the table as well”. Rob Wood, chief UK economist at Pantheon Macroeconomics, said the rise in services inflation to 3.7% from 3.2% was a stronger signal of underlying price pressures but added that the overall figures would support an expected decision to leave interest rates unchanged. “The inflation figures will support the MPC’s highly likely decision to keep Bank Rate on hold this week and make a July hike less likely,” said Wood. A slowdown in food and drink inflation helped offset stronger services inflation.