Inflation fell to its lowest in two and a half years in May as food and fuel price rises eased.
The unexpected fall – from 3% to 2.8% as measured by the Consumer Prices Index (CPI) – increases the likelihood that the Bank of England will try to further stimulate the economy as it continues to reel from the euro debt crisis.
The Bank’s Governor Mervyn King last week hinted that it may introduce more quantitative easing (QE) to pull the UK economy out of the doldrums.
Vicky Redwood, economist at Capital Economics, told Reuters: “"King's comments last week indicated that more QE will soon be forthcoming and these figures might help to sway any of the more wavering members into voting for more stimulus.”
The pound slipped against the euro and Government bonds briefly rose after the latest inflation figures were published this morning.
Inflation has been stubbornly above the Banks 2% target since December 2009 but today’s figures show between April and May, average consumer prices dropped by 0.1% – the first fall between these two months since records began in 1996.
Inflation has now fallen from 5.2% last September.
High inflation has been blamed for stifling consumer spending. The Bank said last month that inflation was likely to remain above target until the second half of next year before falling to around 1.6% in two years' time.
A global drop in oil prices caused by the worldwide economic weakness put the brakes on price rises at UK petrol pumps in May – they increased by the smallest amount since October 2009 – while slower price rises for food also eased inflationary pressures.
On the Retail Prices Index (RPI) measure, inflation fell to 3.1% from 3.5% in March.
