Rate hike pressure eases after cost of living holds steady despite oil rise

0 BOE, headed by governor Mark Carney, meets on 21 June Inflation held steady in May despite higher oil prices, easing the pressure on the Bank of England to raise interest rates.

Official figures yesterday showed that the consumer prices index (CPI) measure of inflation remained at 2.4 per cent last month, unchanged from April and in line with economists’ expectations. The result came despite a hike in fuel costs, with the price of petrol up 4.6p per litre monthon-month to 125.3p, the largest rise since January 2011. Diesel prices rose 4.7p per litre to 129.2p.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the steady level of the cost of living would enable the Bank of England to keep interest rates on hold at 0.5 per cent, having backed away from a rate rise earlier this year.

He said the central bank’s monetary policy committee was likely to wait until next year before raising rates again.

Alastair Neame, senior economist at the Centre for Economics and Business Research (CEBR), said: “The monetary policy committee is due to meet again on 21 June and is now expected to hold rates at 0.5 per cent. At the start of the year, while financial markets had priced in a Q2 rate rise, the BOE repeatedly stressed that any monetary tightening would be conditional on a return to robust GDP growth.

“Following poor (0.1 per cent) GDP growth in Q1, however, the latest industrial production and construction output data have added to the negative outlook in Q2 suggesting that the BOE will be inclined to retain their dovish stance a little longer.”

A number of big energy companies have announced increases to tariffs recently, and economists expect these bill hikes will continue to feed through to families throughout the summer.