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Inflation holds steady weakening case for interest rate rise

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13/06/2018
The rate of inflation remained unchanged in May, holding steady at 2.4%, further weakening the case for an interest rate rise this summer.

Rising airfares and higher petrol prices were offset by falls in the cost of games, toys, hobbies, food and non-alcoholic beverages, according to the Office for National Statistics (ONS).

Inflation had been expected to tick up to 2.5% last month.

Today’s data follows yesterday’s lower than expected wage growth and Monday’s weak manufacturing data.

Alistair Wilson, head of retail platform strategy at Zurich, said: “With inflation now within touching distance of the Bank of England’s 2% target, the Bank’s Monetary Policy Committee will be feeling less pressure to raise rates, and they may well now hold fire until later in the year.”

‘Missed opportunity to raise rates’

Tom Stevenson, investment director for personal investing at Fidelity, said the Bank of England may have “missed the opportunity” to raise rates this year.

“The Bank of England is desperate to lift interest rates off the floor in order to provide some dry powder for when the next downturn bites. If interest rates remain close to zero, the central bank will struggle to offset a slowing economy when it needs to. With inflation heading back to target, and the link between buoyant employment and price rises now apparently broken, the Old Lady looks increasingly powerless to act.

“If real wage growth continues to stutter, inflation falls back from here, and economic activity remains subdued then we could see the Bank of England put off its decision to raise rates to next year.”

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