British inflation slows again to 1.5% - ONS

Tuesday 17 June 2014 13.14
UK inflation at lowest rate in four and a half years
UK inflation at lowest rate in four and a half years

Britain's 12-month inflation slowed to 1.5% in May - the lowest level for four and a half years - official data showed today. 

Although Britain is not in the euro zone, the unusually low trend for 12-month inflation shadows even lower inflation in the 18-member single currency area. 

That has pushed the European Central Bank into exceptional measures to try to push money through the economy and support prices and ward off the threat of deflation. 

However, in Britain, there is now talk that the Bank of England may have to raise rates to slow down overheating, mainly in the property market

The Consumer Prices Index (CPI) inflation measure moved down to 1.5% in May from 1.8% in April, the Office for National Statistics (ONS) said in a statement. 

"Falls in transport services costs, notably air fares, provided the largest contribution to the decrease in the rate," the ONS said. Other large downward effects came from the food and non-alcoholic drinks and clothing sectors. 

The UK inflation rate last stood at 1.5% in October 2009, and was last seen lower in September 2009 at 1.1%. 

The latest figures mark the sixth month in a row when the rate has been at or below the Bank of England's 2% target, the first time this has happened since 2009.

Air fares, which were lower due to the timing of Easter, had a significant downward effect, while petrol pulled in the other direction as pump prices crept up. 

Food and non-alcoholic beverages fell by 0.6% year on year, the sharpest fall since October 2004. The last time there was a decline was in March 2006. 

Supermarket staples such as bread and cereals, meat, vegetables and soft drinks led the drop. Tesco, Asda, Sainsbury's and Morrisons have been battling on price as they face an increasing threat from discounters Aldi and Lidl gnawing at their market share.

Meanwhile, lower womenswear prices saw clothing and footwear record negative inflation for the first time since April last year. 

Despite the drop in inflation, it remains well above the rate of wage increases, which have fallen to 0.7%, meaning real-terms pay is still stalling.

The figures come days after Bank of England governor Mark Carney signalled that the first hike in interest rates could come sooner than thought, prompting a number of forecasters to bring forward expectations of a rise to this autumn.

Continued low inflation appears to ease any pressures on the Bank to lift rates but Mr Carney pointed to growth being much stronger and unemployment falling much more quickly than had been expected. 

UK policy-makers must consider inflationary pressures that could be building up down the track and whether it is sensible to leave so-called "emergency" monetary policy in place with the economic picture looking healthier.