The further fall in UK inflation in May is a nice surprise, given that we and the consensus had expected it to hold broadly steady. The fall from 3% to 2.8% was driven by a drop in petrol prices and a fall in food price inflation (perhaps as retailers passed on previous falls in agricultural prices). Admittedly, core inflation nudged up from 2.1% to 2.2%. But this mainly reflects a brief period of sharp discounting this time last year and we had thought it would pick up more sharply than this.
Headline inflation will probably stay around this level in June, but it should then start to fall more quickly and we still think it could be below 2% before the end of the year. Mervyn King’s comments last week indicated that more QE will soon be forthcoming and these figures might help to sway any of the more wavering members into voting for more stimulus.
More top news
The president of the Philippines has offered to shoot criminals while warning he may bring police back to his deadly war on drug addicts.
Malta's government is offering the reward for anyone with information on who killed Malta journalist Caruana Galizia with a car bomb.
Ministers are ready to reduce the waiting time for Universal Credit payments following an outcry from Tory MPs, it has been suggested.