UK Inflation Slows Slightly In May

(RTTNews) - UK consumer price inflation softened in May as the slowdown in transportation costs was largely offset by the rise in food prices and reinforced expectations that the Bank of England will maintain the interest rate steady this week.

The consumer price index registered an annual increase of 3.4 percent, slightly slower than the 3.5 percent rise seen in April, the Office for National Statistics revealed on Wednesday. However, this was slightly above the forecast of 3.3 percent.

The ONS said that the CPI inflation rate and index were overstated in April by 0.1 percentage points as a result of an error in the Vehicle Excise Duty component. The statistical office said the April figures have not been amended but the corrected VED information has been used to produce the May index.

On a monthly basis, the CPI gained only 0.2 percent, much slower than the 1.2 percent rise seen in April. Core inflation that strips out prices of energy, food, alcohol and tobacco eased to 3.5 percent, in line with expectations, from 3.8 percent in the previous month.

Inflation data came ahead of the BoE monetary policy announcement on June 19. The central bank is widely expected to leave the benchmark rate unchanged at 4.25 percent. The bank has lowered the rate four times since last August.

Capital Economics economist Ruth Gregory said, "May's figures were in line with the Bank's expectations, so today's release is unlikely to move the needle much for the Bank."

Although inflation eased in May, the elevated level remains a real concern for businesses and confirms that price pressures persist, British Chambers of Commerce Head of Research David Bharier said.

Bharier said taxation is the most cited concern among firms. Further, there is significant risk to global supply chains from the recent escalation between Israel and Iran.

"The mounting uncertainty makes it more likely that the Bank will hold the interest rate at 4.25 percent tomorrow," Bharier said. ONS data showed that the largest downward contribution to overall inflation came from transport, while food, furniture and household goods provided upward contributions.

Transport cost grew only 0.7 percent in May from a year ago. The slowdown reflected falls in air fares and the price of motor fuels, together with the correction of an error in the Vehicle Excise Duty series.

The CPI goods climbed at a faster pace of 2.0 percent after a 1.7 percent rise. The rate hit the highest since November 2023. Meanwhile, services inflation slowed to 4.7 percent from 5.4 percent.

Another report from the ONS showed a sharp slowdown in the UK house price growth in April due to the end of the stamp duty holiday. House prices grew 3.5 percent year-on-year in April, following March's 7.0 percent increase.

The ONS said this was the first slowdown in house price inflation since December 2023.