The UK inflation reading for May has come in cooler than expected, providing a much-needed boost to business and consumers suffering from higher prices.
The pound dropped around 25 pips against the dollar in the immediate reaction, with traders eyeing this week’s Bank of England meeting for further insight into the trajectory for interest rates.
Energy prices remain high, but a general slowdown in the pace of price rises will be welcome to households that have faced months of erosion in their spending power due to the conflict in the Middle East.
Headline UK CPI for May remained at 2.8% year-on-year, below expectations of 3.0%, while the month-on-month reading dropped to 0.2% from 0.7% previously.
“UK inflation was flat during May, coming in below expectations despite higher energy prices continuing to weigh on UK households and businesses,” said Scott Gardner, investment strategist at J.P. Morgan Personal Investing.
“This reading will provide some hope that any rebound in UK inflation could be short-lived after the announcement of a framework deal earlier in the week between the White House and Iran to stop fighting.
“Under the surface, the energy price spike was most visible for motorists who saw petrol prices peaking during May. Food prices tailed off slightly while core inflation was softer than many expected. Services inflation moved higher while raw materials also increased, putting pressure on businesses to either absorb higher costs or pass these on to buyers.”