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UK inflation stalls to weaken case for August rate rise

Staff Writer |
Inflation was unchanged at 2.4% in the UK in May, further weakening the case for the Bank of England to increase interest rates in August.

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The annual rise in the consumer price index was in line with economists' average forecast. The rate of increase, reported by the Office for National Statistics, remained above the BoE's 2% target but followed a series of mixed signals about the state of the UK economy.

The BoE's monetary policy committee is weighing up whether to increase interest rates at its August meeting after holding off from an expected rise in May. The pound fell in response to the inflation figures, suggesting markets believe the chances of a rate rise have weakened.

Inflation has fallen from 3.1% at the end of 2017 but the BoE has said it expects rising wages to add to price rises as the effect of the pound's post-Brexit decline drop out of the figures.

Yet labour market figures on 12 June showed wage growth slowing even as employment levels rose.

Surveys of business activity have also remained weak, suggesting the BoE may have been too optimistic in believing the sharp slowdown in growth in the first quarter was mainly due to bad weather.

Prices in May were supported by the rising cost of motor fuel and air and sea fares, which were affected by the timing of Easter. These upward pressures were partly offset by lower prices for games, domestic energy, food, non-alcoholic drink and furniture.

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