FALLING car prices and air fares helped send inflation down for the second month running, figures showed today, giving the Bank of England breathing space to keep rates low.
Figures from the Office for National Statistics showed annual inflation was running at 2% in May, down from 2.1% in April.
Rising wage growth and hawkish recent comments from some Bank policymakers have kept a rate rise from the present 0.75% on the table although money markets are suggesting a potential cut in rates, especially if Brexit troubles start to bite.
Panmure Gordon’s Simon French said: “Today’s 2% inflation print is hardly the justification for a surprise hike in UK interest rates, not least that the rest of the world’s central bankers are itching to cut rates. It seems highly unlikely that the MPC will choose to go it alone anytime in 2019.”
Suren Thiru, head of economics at the British Chambers of Commerce, said: “With inflation relatively subdued, and against a backdrop of heightened political and economic uncertainty, the case for raising interest rates anytime soon remains weak, despite recent warnings by some MPC members.”
The Bank will give its latest verdict on policy tomorrow although the Federal Reserve was expected tonight to signal it is ready to cut rates for the first time in more than a decade. Analysts think this rate cut could come in September, with another before the year is out, to deal with the fallout from President Trump’s trade battles with China.
Doubts over the health of the global economy were underlined today by stark data from Bloomberg revealing a record $12.5 billion (£10 billion) in sovereign bonds trading on negative yields, meaning investors are effectively paying to lend to many nations.
Dovish comments from European Central Bank boss Mario Draghi this week pushed French 10-year yields into negative territory for the first time, joining other countries including Germany and Sweden in negative territory.
This trend is a likely herald of rate cuts and other stimulus by central banks, pushing up the cost of bonds and lowering the yield they pay.
By SIMON ENGLISH AND RUSSELL LYNCH