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Inflation undershoots expectations at 0.3%

Inflation undershoots expectations at 0.3%

UK inflation undershot expectations in May as it held steady at 0.3 per cent, with commentators predicting “subdued” activity for much of the next half year.

The Consumer Prices Index (CPI) rose by 0.3 per cent in the year to May 2016, unchanged from April’s reading but below the market consensus of 0.4 per cent.

The Office for National Statistics (ONS) noted that transport costs, restaurant and hotel bills and price of telecommunication services had risen, with these upward pressures offset by falls in the price of clothing, food and games, toys and hobbies.

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“This continues the position seen since the beginning of the year of a rate which is a little above zero,” the ONS said.

“With the exception of March, when the rate was influenced by the timing of Easter, headline inflation has been 0.3 per cent for all months of 2016.”

Paul Hollingworth, UK economist at Capital Economics, suggested inflation could eventually pick up, regardless of which way next week’s EU referendum could go.

“UK CPI inflation looks set to remain fairly subdued for most of the second half of this year,” he said.

“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.

“Inflation should gather more pace next year, regardless of which way the EU referendum vote goes next week.”