- CPI growth had been forecast to accelerate to 0.4% in May
- Figures come as BOE prepares to meet before Brexit referendum
U.K. inflation unexpectedly held at 0.3 percent in May as rising transport costs were offset by falls in the price of clothing and food.
The rate, reported by the Office for National Statistics on Tuesday, was lower than the 0.4 percent median estimate in a Bloomberg survey of economists. Core inflation, which excludes volatile food and energy prices, remained at 1.2 percent.
Bank of England officials meet this week amid expectations they will refrain from raising the benchmark interest rate from a record-low 0.5 percent until early 2017. Inflation has been below their 2 percent target for more than two years, and BOE forecasts are for a gradual pickup with the rate only returning to the goal in mid-2018.
There is speculation that borrowing costs could even be cut to shore up the economy if Britain votes next week to leave the European Union.
The pound fell Tuesday to $1.4132 as of 9:45 a.m. London time, down 1 percent from a day earlier.
Upward pressure on inflation last month came from transport costs as motor fuel prices rose 2.7 percent compared with 1.9 percent a year earlier. Sea fares climbed 0.1 percent, in contrast to the 6.4 percent decline a year earlier. There were also influences from restaurant and hotel bills and the price of telecommunication services.
Downward pressure came from food and non-alcoholic drinks, which fell 0.4 percent, and from clothing, which declined 0.2 percent compared with a 0.5 percent gain a year earlier. It suggests competition is forcing retailers to absorb higher costs caused by a higher minimum wage and the impact of a weaker pound on import prices. Prices of games, toys and hobbies also fell, the ONS said. Overall, consumer prices rose 0.2 percent on the month.
The report provides the last snapshot of inflation before the June 23 referendum on EU membership, with recent polls showing the campaign to leave the 28-nation bloc ahead of “Remain.”
In the BOE’s May assessment, inflation was predicted to be below 1 percent by the end of 2016 and still be under 2 percent a year earlier.
A vote to leave the EU could see inflation accelerate at a much faster pace as a depreciating pound drives up the cost of imports, according to economists including Sam Hill at RBC Capital Markets.
Another measure of inflation, the retail prices index, rose 1.4 percent compared with a 1.3 percent gain in April. The index is used among other things to calculate interest-payments on inflation-protected gilts.
A separate report showed the cost of goods leaving factory gates rose 0.1 percent. Rising crude oil prices saw input costs grow 2.6 percent, the biggest monthly gain since April 2011. They fell 3.9 percent from a year earlier, the smallest annual decrease since May 2014.
House-price growth slowed to an annual 8.2 percent in April from 8.5 percent in March, with London easing to 14.5 percent from 15.5 percent. The figures, the first using a new methodology, put the average price of a home in the U.K. at 209,000 pounds ($295,000).