UK inflation remains steady as clothing, food and games prices fall
UK inflation remained depressed in May, with the consumer price index (CPI) flat at 0.3% on an annual basis, short of expectations for a slight increase.
The year-on-year data from the Office for National Statistics was forecast to show a rise to 0.4% from the previous month's 0.3%.
Moreover, the month-on-month rate of CPI only rose to 0.2% when it had been expected to rise to 0.3% from 0.1% in April.
Rises in transport costs, restaurant and hotel bills and the price of telecommunication services were the main drivers of CPI, but these upward pressures were offset by falls in the price of clothing, food and games, toys and hobbies.
Indeed, core CPI, which excludes more volatile prices such as energy and food, remained 1.2% higher than May last year as it had the month before, suggesting no underlying upturn in price pressures though this was also shy of the estimated slight increase to 1.3%.
CPI inflation looks set to remain fairly subdued for most of the second half of this year, said Paul Hollingsworth at Capital Economics, with some clear risks on the horizon.
"If the UK votes to leave the EU next week, we expect sterling to fall sharply, which would put significant upward pressure on inflation further ahead. On the other hand, if the UK votes to remain, then sterling could recover a bit.
"But the economy would probably get a post-referendum rebound too. So whatever happens, we expect inflation to regain some momentum over the coming quarters, and should be closer to 1% around the turn of the year."
Economist Chris Williamson at Markit said that the steady rate of CPI added to the view that no hike in interest rates is on the horizon for the Bank of England, giving policymakers leeway to add stimulus to the economy if needed.
“Inflation has been stuck at 0.3% for most of the year to date, and only modest further upward movement is likely in coming months, meaning the headline rate looks set to remain well below the Bank of England’s 2.0% target for the foreseeable future.
He added: “Looking ahead, the rise in the oil price is likely to add further to inflation in coming months, but subdued wage growth should help keep the headline rate down below the Bank’s target. Recruiters reported the lowest for two and a half years in May as demand for staff cooled and low inflation kept wage bargaining power down. The exchange rate is more of an unknown, and much of course depends on the outcome of the 23 June referendum."