UK inflation falls to 1.5%

The UK’s inflation rate dropped to an annual 1.5 per cent in May, far below economists’ forecasts and the lowest since September 2009, reports FTAdviser sister title FastFT.

The rate of consumer price inflation compared to a 1.8 per cent annual increase in April. May’s rate was dragged down by falling costs of airfares and food.

Sterling hit a session low of $1.6936 after the data, down from $1.6977 immediately beforehand.

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The Office for National Statistics said: “Falls in transport services costs, notably air fares, provided the largest contribution to the decrease in the rate.

“Other large downward effects came from the food & non-alcoholic drinks and clothing sectors. The largest offsetting upward effects came from motor fuels and recreation and culture.”

Economists were divided on their outlook for the CPI. Those surveyed by Bloomberg had expected a 1.9 per cent annual rate of price increases, while those surveyed by Reuters anticipated a 1.7 per cent rate.

The Bank of England has a 2 per cent inflation target, but forecast in its last quarterly “Inflation Report” that the consumer price index would be 1.8 per cent by the end of the year.

Month on month, the CPI fell by 0.1 per cent. Economists surveyed by Reuters had expected a 0.2 per cent gain.