British consumer price inflation slowed much less than expected in May to remain above the Bank of England's 2 per cent target for a 20th consecutive month, official data showed today.
The Office for National Statistics said consumer prices rose 0.6 per cent on the month in May, taking the annual rate to 2.2 per cent from 2.3 per cent in April, the lowest since January 2008 but above forecasts of 2 per cent.
Sterling rose to hit its highest level against the euro this year and gilt futures fell after the stronger than expected figures.
Besides an anticipated upward effect from tax rises for alcohol and tobacco in this year's government budget, the chief upward influences were from rising prices of DVDs, televisions, clothing and footwear.
British inflation has been slow to fall despite much lower energy and commodity costs compared to last year and a recession, perhaps due to the weakness of sterling.
But policymakers still expect inflation to fall sharply over the coming months and, as such, the figures are unlikely to alter expectations that monetary policy will remain loose for a considerable period of time.
"We still think inflation will fall below one percent later this year but the combination of green shoots in the economy and inflation surprising on the upside does make the case for more quantitaive easing harder to argue," said Alan Clarke, an economist at BNP Paribas.
The BoE has cut interest rates to a record low of 0.5 per cent and resorted to a £125 billion asset-buying spree with newly created cash to kick start Britain's recession-hit economy.
The government has set a £150 billion ceiling for the quantitative easing programme and many analysts expect the BoE to use all of that.
The annual RPI measure of inflation, on which many wage deals are based and which includes housing costs, unexpectedly rose to -1.1 per cent in May from -1.2 per cent in April. Analysts had predicted a drop to -1.5 per cent.
As well as being affected by the same upward pressures as the CPI measure, May's RPI was also boosted by housing costs as average mortgage interest rate payments rose slightly.
Reuters