Business

UK inflation fell to 3.4% in May on lower food prices

UK inflation fell faster than expected in May, helped by lower food prices and slower rises in petrol and alcohol.

The Consumer Prices Index (CPI), the government's preferred measure, dropped to 3.4% from 3.7% in April, according to the Office for National Statistics.

The fall was bigger than the 3.5% analysts' forecast, and could mean that April's 17-month high marks a peak.

The Retail Prices Index (RPI), a measure widely used in pay talks, fell to 5.1% in May from 5.4%, the ONS said.

Howard Archer, an analyst at IHS Global Insight, said: "May's retreat in CPI will be of some relief to the Bank of England and boosts its case that inflation will head down significantly over the coming months."

He expects inflation to be under the 2% target by early-2011 barring any increase in VAT in next week's emergency budget.

Interest rates

The CPI fall also eases pressure on the need to raise interest rates.

"It reinforces our belief that the Bank of England is more likely than not to keep interest rates down at 0.50% into 2011 as recovery remains bumpy and gradual with major fiscal tightening and the Eurozone debt crisis posing serious threats to growth prospects," Mr Archer said.

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