Inflation edges down to 2% after car prices and air fares fall

19 June 2019

It is good news for consumers and the Bank of England after falling air fares and car prices helped bring down inflation to 2%.

The Consumer Prices Index (CPI) 12-month rate was 2.0% in May, down from 2.1% in April, according to the latest figures from the Office of National Statistics (ONS).

The ONS’s alternative measure called CPIH, which includes housing costs, was 1.9% in May down from 2.0% the previous month.

The statistics authority says that falling air fares and car prices helped to push inflation down.

The timing of Easter in April meant air fares fell in May after demand dropped off following a surge in prices over the holiday period.

There was upward pressure from rising prices from games, toys, accomodation and furniture.

The fall brought inflation back in line the Bank of England’s 2% target, meaning the case for raising interest rates has weakened slightly.

With Brexit pushed back to the October deadline of 31 October, most experts agree that the Bank will hold off raising interest rates until the UK has left the EU.

Mike Jakeman, senior economist at PwC, says: “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, says there is little pressure on the Bank of England to raise interest rates.

He says: “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.

“The Bank will most likely err on the side of caution as we face continuing political and economic uncertainty during the rest of 2019.”

“Until there is more clarity on the outlook, interest rates will remain anchored close to a 300-year low, leaving the real value of cash dwindling when compared with the potential returns offered by the stock market, the out-of-favour UK market in particular.”

Separate figures the ONS show that annual UK house price growth slowed to 1.4% in April, down from 1.6% the previous month.

Annual growth was largely dragged down by falling prices in London and the South East. The lowest annual growth was in London, where prices fell by 1.2% over the year to April 2019, up from a fall of 2.5% in March 2019.

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