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Inflation falls to 2.8 per cent

Inflation in the UK fell to its lowest level for two and a half years in May, latest figures from the Office for National Statistics (ONS) show.

The drop in the Consumer Prices Index (CPI) to 2.8 per cent, from three per cent in April, mainly came from falling oil prices and cheaper petrol. Lower food and alcohol prices also contributed to the decrease.

This fall was mirrored by the Retail Prices Index (RPI) – a broader measure often used for setting pay – which also fell to 3.1 per cent in May from 3.5 per cent the previous month.

Upward pressures in both indexes came from rises in airfares and travel over the Easter period.

Although inflation remains above the Bank of England’s two per cent target for the end of the year, the fall is unexpected. Many economists had forecast the rate would remain unchanged in May.

It is speculated that the figures may give more leeway to the Bank of England to continue with additional rounds of quantitative easing (QE).

According to the BBC, a Treasury spokesperson said the ‘good news’ would provide ‘some welcome relief for family budgets.’

The ONS is currently undertaking a consultation into the creation of a new CPI measure that would include housing costs. The new measure is being proposed to offset criticisms that the current CPI does not take into account the cost of being a home owner, such as mortgage repayments, which make up 10 per cent of a household’s spending.

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