UK inflation held steady at 2.4% in May, missing analysts estimates of a move higher and further cooling expectations on an interest rate hike from the Bank of England this summer.
The Office for National Statistics reported the Consumer Price Index remained at 2.4% in May, after falling from 2.5% in April and a year-peak of 3.1% in November 2017, prompting a fall in sterling. The pound fell 0.34% against the US dollar to $1.3326 shortly after the announcement, and is also down 0.37% against the euro.
According to the Financial Times, economists had expected rising crude oil prices would feed into higher transport costs for consumers, lifting inflation higher.
However, the price of recreational and cultural goods did not rise by as much as this time last year, dampening the headline rate of inflation. In particular, the ONS said this was partly due to prices of video games.
"Prices for these games are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month," the ONS statement said.
Head of inflation at the ONS Mike Hardie said: "Recent large rises in the cost of crude oil have fed through to prices paid by consumers at the pump. Air fares and ferry prices also contributed to the overall increase in inflation due to the timing of Easter. However, these effects have been partly offset by price falls in computer games and energy costs rising by less than this time last year."
Alistair Wilson, head of retail platform strategy at Zurich, said lower than expected UK inflation d in May combined with slipping wage growth makes the case for an interest rate rise this summer even weaker.
"With inflation now within touching distance of the Bank of England's 2% target, the Bank's Monetary Policy Committee will be feeling less pressure to raise rates, and they may well now hold fire until later in the year.
"Lower inflation isn't a reason for Britain to relax. If anything, households should be using it as an opportunity to prepare themselves for when times are less rosy, looking beyond the normal saving options to make what little savings they can afford to put away, go that bit further."
Ben Brettell, senior economist at Hargreaves Lansdown, said although inflation was expected to move higher, there are other factors to consider: "Inflation had been expected to tick up to 2.5%, but the unchanged headline number masks a few details, which could show inflationary pressure is beginning to build. Output price inflation rose for the first time in six months, with prices rising 2.9% in the year to May compared with 2.5% in April. Companies' raw material costs jumped 9.2% on the year.
"Some will say these figures add weight to the case for higher rates. But a slew of recent weaker data has dented expectations it will happen in August. Yesterday's wage growth numbers were lower than expected, and data released on Monday showed manufacturing output dropped in April.
"Overall, I think the MPC will want confirmation that the Q1 growth figure was just a blip before raising borrowing costs."
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