Belfast Telegraph

UK inflation rate expected to fall

Inflation should fall back from April's 17-month high when official figures on the cost of living for May are published.

The Consumer Prices Index (CPI) is forecast to ease to 3.5% from 3.7% in April - thanks to lower oil prices and the contrast with a year earlier when tobacco and alcohol duty hikes came into force.

The CPI is still well above the Bank of England's official 2% target - prompting an open letter to Chancellor George Osborne last month from Governor Mervyn King - although a fall this month should help soothe growing nerves on its rate-setting committee.

The Bank's latest survey on inflation attitudes made worrying reading for the Monetary Policy Committee (MPC), with the average expectation for the year ahead rising to 3.3% - a jump up from 2.5% in February.

And MPC hawk Andrew Sentance said there would be some "interesting debates" on the committee during the latter half of this year amid growing pressure to raise rates to counter the inflationary effect of the weaker pound.

Mr King has said the CPI should fall back to the target level within a year as a weak recovery drags down prices, although further inflationary pressure could come as soon as next week if Chancellor George Osborne elects to raise VAT to 20% in his emergency Budget.

Global Insight's Howard Archer added that the long-term outlook for inflation was subdued.

He said: "Price pressures should be contained by substantial excess capacity, a likely bumpy and gradual recovery, wage moderation amid high unemployment and job insecurity."