U.K. Posts Weakest Inflation Since 2016
(Bloomberg) -- U.K. inflation slowed to just a quarter of the Bank of England’s target in May, boosting the case for policy makers to add to their stimulus plan at their meeting this week.
Consumer prices increased just 0.5% from a year earlier, the weakest since 2016, amid falling prices of auto fuel and recreational goods. The core rate, which excludes volatile energy and food prices, slipped to 1.2%. The pound was little changed following the Office for National Statistics report Wednesday.
BOE officials are expected to increase bond purchases by 100 billion pounds ($126 billion) as they look to protect the economy from the impact of the coronavirus pandemic, and some economists suggest further easing will be needed this year, including taking interest rates below zero for the first time.
What Our Economists Say:
“With the risks to the growth and inflation outlook tilted firmly to the downside, we expect the BOE to ease again tomorrow. The central bank is likely to increase its asset purchase target by 100 billion pounds. We see a further extension of 100 billion pounds as likely in the summer. The main risk to our call is that the central bank sees little point in waiting until August and announces a bigger increase in purchases tomorrow.”
--Dan Hanson. For the full U.K. REACT, click here
Most non-essential stores remained closed during May due to the U.K.’s lockdown. Petroleum and diesel prices continued their decline, taking their oil-driven drop over the past year to almost 17%. Games and toys meanwhile reversed price gains seen a month earlier. Modest upward pressure came from food prices.
The central bank, which has already slashed rates to 0.1% and restarted bond buying to fight the crisis, has said the economy may be heading for the worst downturn in three centuries, while data last week showed it shrank by more than 20% in April alone.
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