Inflation falls to four-year low

UK inflation fell to its lowest level in four years last month after a record drop in fuel prices and as clothing and energy costs continued to tumble, official figures have shown.

The Office for National Statistics (ONS) said the rate of Consumer Price Index (CPI) inflation fell to 0.5 per cent in May from 0.8 per cent in April – the lowest since June 2016.

Fuel prices tumbled by 16.7 per cent in May – the biggest fall on record – while energy costs dropped 7 per cent and clothing and footwear prices fell 3.1 per cent as retailers resorted to heavy discounts amid the lockdown.

“There was a continued drop in prices at the pump in May, following the huge crude price falls seen in recent months,” ONS deputy national statistician Jonathan Athow said.

Economists said the further fall in inflation gives the Bank of England room to take more economy-boosting action at its meeting today, when it is expected to launch at least another £100bn of quantitative easing (QE).

This follows £200 billion of extra QE announced in March.

But the Bank is set to hold off from more radical action, such as negative interest rates, for now and experts predict it will keep rates unchanged at the all-time low of 0.1 per cent.

The Bank’s decision follows official figures showing the economy plunged by more than a fifth in April.

Economist James Smith, at ING, said: “We expect headline UK inflation to stay below 1 per cent this year and, given the slack in the jobs market, we’d expect price pressures to stay fairly muted for some time.

“This in turn will keep the pressure on the Bank of England to maintain its current degree of stimulus, and we expect a further £150bn of QE to be unveiled this week.”