UK yearly inflation rate stubborn at 8.7% in May

(Alliance News) - UK consumer inflation remained elevated in May, putting more pressure on the Bank of England, official data showed on Wednesday.

According to the Office for National Statistics, the UK annual inflation rate was unchanged at 8.7% in May, where it had landed in April. Inflation had been expected to cool to 8.4%, according to market consensus cited by FXStreet, so the latest figure was hotter-than-forecast.

The ONS said rising travel prices, second-hand cars, as well recreational and cultural goods and services kept the yearly inflation rate in red-hot territory last month.

Wednesday's reading will put pressure on the Bank of England, on the eve of its interest rate decision. The BoE targets an inflation rate of 2%. The BoE on Thursday is expected to lift bank rate to 4.75%, from 4.5%.

Inflation in the UK is proving stickier than in other major economies, with the headline rate in May having cooled to 6.1% in the eurozone, and 4.0% in the US.

On a monthly basis, prices rose 0.7% in May, cooling off slightly from a 1.2% rise in April from March. The figure topped consensus expectations of a 0.5% rise, however.

Core consumer prices, which exclude volatile categories such as food, energy, alcohol and tobacco, rose 7.1% on-year in May. Market consensus had expected the reading to be unchanged from 6.8% in April, so also coming in hotter-than-forecast.

Meanwhile, ONS figures also showed annual producer input price inflation cooled to just 0.5% in May from an upwardly revised rate of 4.2% in April. Market consensus had been expecting a reading of 1.2% for May. April's reading was previously estimated at 3.9%.

"Crude oil saw a fall in the year to May 2023 of 35% and this is the most dominant slowing effect on the annual input inflation rate," the ONS explained.

From the previous month, producer input prices fell 1.5%, compared to a 0.1% fall in April. Market consensus had expected a 0.5% fall.

"This is the biggest monthly decrease since April 2020 and is notably down from the record monthly increase of 5.1% in April 2022 as a result of the conflict in Ukraine and the immediate impact this had on crude oil prices," ONS said.

By Elizabeth Winter, Alliance News senior markets reporter

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