Summary
- British inflation eased to 3.4% in May, slightly less than expected, after surging to a 15-month high in April.
- The Bank of England is expected to hold interest rates steady at 4.25% following the inflation data, despite concerns about inflation remaining above the two-percent target.
- The UK economy shrank by 0.3% in April, with tariffs and tax hikes impacting growth, leading to the BoE cutting interest rates for the fourth time in nine months.
British inflation eased less than expected in May after surging in April, official data showed Wednesday, fuelling expectations that the Bank of England will hold interest rates steady this week.
The Consumer Prices Index dipped to 3.4 per cent last month from a 15-month high of 3.5 per cent in April, the Office for National Statistics (ONS) said in a statement.
Analysts' consensus forecast had been for a drop to 3.3 per cent.
The inflation update followed official data last week showing that Britain's economy shrank more than expected in April.
The 0.3-percent decline to gross domestic product was owing to a tax hike on UK businesses and a record drop in exports to the United States triggered by president Donald Trump's tariffs.
Responding to the inflation data, chancellor Rachel Reeves said the Labour government's "number one mission is to put more money in the pockets of working people".
Mel Stride, finance spokesperson for the main opposition Conservatives, said that annual inflation remaining "well above" the Bank of England's two-percent target "is deeply worrying for families".
The BoE was widely expected to keep its key interest rate at 4.25 per cent in a decision due Thursday.
"A variety of counteracting price movements meant inflation was little changed in May," noted Richard Heys, acting chief economist at the ONS.
"Air fares fell this month, compared with a large rise at the same time last year," he said, adding that rising chocolate and meat prices helped to offset falling motor fuel costs.
Danni Hewson, head of financial analysis at AJ Bell, warned that "the escalating conflict between Israel and Iran has impacted the oil price in the past week, with UK motorists already bracing themselves for hikes and airfares also expected to soar".
Slugging growth
With tariffs weighing on growth, the BoE last month cut its main interest rate by a quarter point.
It was the central bank's fourth such reduction in nine months and analysts expect it to continue at such a pace until at least early next year.
"The fact that inflation has fallen back slightly... should bring some comfort to the Bank of England as it considers the next move for interest rates," said Sarah Coles, head of personal finance at Hargreaves Lansdown.
"They were expecting inflation to remain well above target at this point in the year, so it won't necessarily spark a rethink on rates.
"Before the announcement, the markets were expecting two more cuts by the end of the year, and there's a reasonable chance this won't move significantly on the back of today's news," Coles added.
(AFP)
