UK consumers received a much-needed relief in May as petrol prices dropped, helping to ease inflation to 3.4% last month. The decline in the consumer prices index (CPI) was primarily due to a steep fall in air fares and petrol prices, which offset the increases in the cost of food and furniture.
According to the Office for National Statistics (ONS), 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%, with the Bank of England's target at 2%.
Services inflation, which has been high in recent years, began to slow more rapidly, down from 5.4% to 4.7%. Despite this, the Bank of England has resisted making steep cuts to interest rates while services inflation remains sticky. However, recent data showing a slowdown in the economy has increased pressure on the central bank to cut the cost of borrowing. Wages growth fell and unemployment increased in the February to April quarter, while the economy shrank in April.
Monica George Michail, an associate economist at the National Institute of Economic and Social Research, said that inflation is likely to remain above 3% for the rest of the year due to persistent wage growth and the inflationary effects from higher government spending. She added that the current tensions in the Middle East are causing greater economic uncertainty and expects the Bank of England to keep interest rates on hold this Thursday and implement just one further cut this year.
Earlier this month, the ONS overestimated its CPI reading for April by about 0.1 percentage point due to an error that exaggerated the effect of higher car tax bills. The original reading was left as the official figure for that month, but the ONS said it would use correctly weighted data in future calculations.
Overall, while the decline in petrol prices brought some relief to consumers, inflationary pressures remain high and the Bank of England will likely continue to monitor developments closely before making any further interest rate cuts.
