UK Edition
Falling petrol costs and slashed clothes prices have driven the UK’s inflation rate to a four-year low, official figures have shown.
The Office for National Statistics said the Consumer Price Index sank to just 0.5pc in May from 0.8pc the previous month – falling even further below the Bank of England’s official 2pc target.
The lockdown of much of the economy due to Covid-19 has hampered the ONS’s ability to collect prices– with 74 items or 14pc of the UK’s inflation basket currently unavailable.
But statisticians said the main drivers of the latest fall were a 2.8p fall in petrol prices last month to a four-year low of 106.2p a litre compared with a 4.2p jump 12 months earlier.
Clothing and footwear prices were also down 3pc compared to 2019, dragging down the headline rate of inflation as retailers launched sales.
The biggest and partially offsetting measure was an apparent rise in lockdown “snacking” for the UK’s new army of home workers as the ONS noted rising prices for items such as packs of cakes, blueberries, peanuts, crisps, and bags of chocolate sweets.
Economists said the figures - in line with market expectations - gave plenty of room for the Bank of England to act with more money printing to bring inflation back to target as the CPI hovers near zero this year.
The Monetary Policy Committee is expected to pump an extra £100bn into the economy on Thursday, taking its quantitative easing stimulus to £745bn so far.
The March collapse in oil prices - driven by a price war and a Covid-19 driven plunge in demand - is still the main influence on inflation although Brent crude prices have bounced back to $40 a barrel after hitting 20-year lows two months ago.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “We expect CPI inflation to hover close to zero throughout the second half of this year, provided oil prices don’t surge. The outlook for extremely low inflation, then, fully justifies the MPC announcing more QE at tomorrow’s meeting.”
Economists are also concerned over a fall in core inflation, stripping out more volatile items, to 1.2pc, its lowest for more than three years.
Paul Dales, chief UK economist at Capital Economics, warned: “A more persistent downward influence on core inflation from the recent plunge in economic activity is only just beginning.
“And even when the economy recovers, we suspect that low wage growth will mean that inflation is more likely to spend the next few years too far below the 2pc target rather than too far above.”