UK inflation remained well above the Bank of England’s target rate in May as higher food prices lifted average prices.
May inflation came in at 3.4%, slightly above economists’ predictions.
The reading is bad news for households, and also means the Bank of England is less likley to cut rates at upcoming meetings. That said, May’s data isn’t wildly different from the April reading, so there won’t be any major shift in rate setters’ thinking or market pricing of when the BoE will next cut.
An error in the calculation of April’s reading means the official figure for April is now 3.4%, down from 3.5%.
“After April’s inflation figures made a messy mistake-laden splash, May’s won’t be making waves. After falling to 3.4% – where it would have been a month earlier if the maths had been right – the ripples will barely touch the Bank of England as it deliberates the next move for interest rates,” explained Sarah Coles, head of personal finance, Hargreaves Lansdown.
Higher food and drink prices are behind the elevated level, which will cause a headache for a government under pressure to support growth. Food prices hit everyone, and rising shopping bills erode the discretionary spending and consumer confidence vital for increased economic activity.
“Higher food and drinks costs offset most of the easing in inflation from other sources – with the annual increase in food and drink prices rising from 3.4% in April to 4.4% in May. The net result is that UK inflation remains high, and far higher than elsewhere in Europe,” said Nicholas Hyett, Investment Manager, Wealth Club.
The pound fell against the dollar in the immediate reaction to the release.