UK inflation rate back to government target
The UK inflation rate dropped last month to bring it exactly in line with the government's two per cent target.
Inflation affected by several factors
Mike Hardie, head of inflation data at the ONS, said, “Inflation eased in May, as travel prices such as air fares fell back after their Easter highs in April. The overall rate of inflation has remained steady since the beginning of the year. “Annual house price growth remained subdued but was strong in Wales, which showed a pronounced increase on the month. In London, house prices continued to fall over the year but rental price growth there strengthened.”The ONS's preferred measure of inflation, which includes owner-occupiers' housing costs, was also down to 1.9 per cent in May, from two per cent in April. The Retail Prices Index was unchanged from April at three per cent.Figures provide boost for consumer spending
Suren Thiru, head of economics at the British Chambers of Commerce, commented, “The easing in consumer prices in May is further evidence that the current trajectory for inflation remains muted, providing a welcome boost to consumer spending power.“A number of transitory factors, such as the recent decline in the value of sterling, may lift consumer prices back above target in the coming months. However, as firms unwind historically-high stock levels, economic conditions are expected to weaken, which should keep inflation close to the Bank of England’s two per cent target for some time to come.“With inflation relatively subdued, and against a backdrop of heightened political and economic uncertainty, the case for raising interest rates anytime soon remains weak, despite recent warnings by some MPC members."Instead there must be a greater focus on providing a clear path forward on Brexit and using the upcoming Spending Review and Autumn Budget to boost the UK’s growth prospects, including tackling the escalating burden of up-front costs, which continues to limit UK growth and productivity.”Mike Jakeman, senior economist at PwC, said the Bank of England would be gratified to see inflation back to the government target."While much of the month-to-month noise can be disregarded...of more significance is the longer-term trend of consumer price growth slowing and settling at the rate desired by the bank," he said.Interest rates unlikely to change
It is highly unlikely that the Bank of England will adjust interest rates when it meets tomorrow (Thursday). Although it would likely prefer to tighten monetary policy, which remains extraordinarily loose, with inflation around target, economic growth crawling along and no clarity on the future path on Brexit, its hands are tied."Indeed, we do not expect the bank to be able to adjust rates until greater clarity is provided on Brexit, which means the end of October at the very earliest."Tom Stevenson, investment director for personal investing at Fidelity International, added, "The prospect of low rates for the foreseeable future, together with last week’s above-inflation increase in average earnings, means UK households should be feeling more relaxed about their financial prospects than for some time. “In the thick of a leadership contest – and with Brexit as far from resolution as ever – the Bank will most likely err on the side of caution as we face continuing political and economic uncertainty during the rest of 2019."Subscribe to Relocate Extra, our monthly newsletter, to get all the latest international assignments and global mobility news.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory
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