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UK inflation stays at 4.5 per cent

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The consumer prices index of annual inflation remained unchanged at 4.5 per cent in May, according to figures from the Office for National Statistics.

The retail prices index - the measure of inflation which takes account of mortgage interest payments - also remained unchanged at 5.2 per cent.

The ONS says that although the CPI and RPI figures remained unchanged there were significant upward and downward pressures at a more detailed level. The ONS highlighted downward pressures from transport, furniture, household equipment and maintanence. By contrast, the largest upward pressures came from non-alcoholic beverages, which rose 1.3 per cent between April and May this year, as well as fruit and meat prices. Upward pressure came from alcohol and tobacco as well as miscellaneous goods and services.

The ONS says that with CPI at 4.5 per cent, the UK is markedly higher than the average for the European Union, which stands at 3.2 per cent.

Last month, Bank of England Governor Mervyn King warned energy prices could push inflation up to 5 per cent by the end of the year.

In King’s letter to the Chancellor, King said inflation would “probably” be below the Government’s inflation target of 2 per cent if it was not for increases in VAT, energy prices and import prices.

Currency Solutions forex broker Max Johnsen says: “So the Bank’s game of Russian roulette with the economy continues. If it raises rates to control inflation, it will be putting another bullet in the chamber.

“From an interest rate perspective, the monthly inflation data is almost irrelevant given the embattled state of the economy. Unless inflation starts to rise again materially, by around another basis point, we can disregard any notion of a rise in Bank Rate during 2011. Martin Weale may argue that a rate rise now, however nominal, will give us a head start on inflation and obviate sharper potential rises in the future, but we don’t have the luxury of preparing for the future. In these highly precarious times, there’s only the present. And the present isn’t looking great for UK Plc.”

“Sterling hit a week-high against the euro on Monday but this was as much to do with ongoing eurozone debt issues as the likelihood of rising inflation.”

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Readers' comments (2)

  • In King’s letter to the Chancellor, King said inflation would “probably” be below the Government’s inflation target of 2 per cent if it was not for increases in VAT, energy prices and import prices.

    Surely the whole point of the MPC is to deal with the ever changing world and adjust policy accordingly, not to sit there doing nothing and wishing that nasty things had never happened!

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  • Lee, you have hit the nail on the head. King has a job to do and is refusing to do it because the conditions just aren't right for him.

    As an aside, import prices are high mostly because sterling has lost a quarter of its value recently as a direct result of his monetary policy.

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