UK inflation cooled it to 3.4% when the Bank of England held interest rates in May
Inflation in the UK fell to 3.4% in May, slightly below 3.5% in April, indicating a gradual easing of price pressures across the economy – although inflation remains well above the Bank of England’s 2% target.
The latest data from the Office of Statistics (ONS) also shows a decline in core inflation, which eliminates turbulent categories such as food, energy, alcohol and tobacco. Core inflation fell to 3.5% from 3.8% last month, giving policymakers some encouragement that potential pressure began to fade.
Service inflation is a key indicator closely watched by the Bank of England’s Monetary Policy Committee (MPC) to show ongoing domestic price pressures, which also fell slightly – from 5.4% in April to 5.3% in May.
Despite the slowdown, the bank is expected to stabilize interest rates at 4.25% when the MPC meets on Thursday as it awaits more consistent evidence that inflation is continuing to return to its target.
ONS acting chief economist Richard Heys said the biggest contribution to the monthly inflation figures came from transportation, especially air fares, which compared with a sharp rise in May compared to the same period last year. Last spring, the timing of Easter and school holidays increased travel costs, which reduced annual comparisons. Gasoline prices also led to a decline.
However, the downward momentum is driven by rising prices of food, including chocolate and meat, as well as the increase in costs of furniture and household appliances such as refrigerator freezers and vacuum cleaners.
Economists say that while inflation is on the right path, the Bank of England will need to see further declines in service and wage growth figures before starting to lower interest rates. With inflation still exceeding the target point and service inflation still exists, many analysts believe the bank will remain in holding mode until later in the summer.
The current pricing in the market fell in September, depending on the trajectory of wage data and inflation expectations.
