Business

Inflation holds steady in spite of rise in fuel prices

Inflation held steady in May thanks to rising fuel prices, but falling price pressure in other parts of the basket used to measure inflation may give the Bank of England pause as it looks to hike interest rates.

Consumer price index (CPI) inflation rose to an annual rate of 2.4 per cent in May, unchanged from April, according to the Office for National Statistics (ONS). The inflation measure including housing costs (CPIH), the ONS's preferred measure, rose slightly from 2.2 per cent in April to 2.3 per cent in May.

The rise in fuel prices as oil prices have increased was widely expected, with the lack of building inflationary pressure suggesting the Bank of England may be unable to follow through on a planned rate hike as it targets a two per cent rate of CPI inflation.

Read more: Wages and domestic inflation pressure to rise says Bank of England boss

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Todays stalled inflation rate suggests the Bank of England may have missed the opportunity to raise interest rates this year.

"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," he said.

Economists on the rate-setting monetary policy committee (MPC) have signalled repeatedly that a rate hike is likely in the coming months, after they were forced to defer a widely expected move in May after first-quarter GDP growth disappointed.

Read more: UK inflation dips to 13-Month low in April

Sir Dave Ramsden, one of the most dovish members of the committee, last week said he expects rising wage pressure, an indication that he is likely to vote in favour of raising rates in the coming months. The next MPC meeting takes place next week, although most economists expect the debate to be focused on an August hike.

Jeremy Thomson-Cook, chief economist at WorldFirst, said a "darkening" outlook for employment could stymie an upward move. Unemployment remained at four-decade lows in April, according to data released yesterday, with little in the way of further possible gains expected by most economists.

Read more: DEBATE: Can we relax about now that wages are rising faster than inflation?

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