Page last updated at 09:54 GMT, Tuesday, 16 June 2009 10:54 UK

Further slowdown in UK inflation

Graph showing inflation measures

UK annual inflation slowed again in May as the Consumer Prices Index (CPI) fell to 2.2% from 2.3% in April, the Office for National Statistics (ONS) has said.

The less-than-expected decline means the figure remains above the Bank of England's target of 2%.

However, the annual inflation reading was the lowest since January 2008.

Another inflation measure, the Retail Prices Index (RPI), which includes mortgage interest payments and housing costs, moved to -1.1% from -1.2%.

The rate of price declines under the RPI measure eased slightly because of a slight rise in average mortgage interest payments. The RPI rate is used by many companies as the starting point for wage bargaining

The latest inflation figure from the ONS mean the CPI measure has now been above the Bank of England's target rate for 20 months. However, the Bank is forecasting that CPI inflation will fall to 1% or lower later this year.

Clothes prices up

The main factor behind the inflation slowdown was an easing in rise in the cost of food and energy. Electricity bills fell this year compared with unchanged prices a year ago, the ONS said.

The main inflationary influences, in addition to tax rises on alcohol and tobacco in this year's Budget, were rising prices of DVDs, televisions, clothing and footwear.

Peppers for sale
There has been an easing of food prices

"Although the drop in inflation was less than anticipated, these figures indicate that CPI inflation is set to fall further in the coming months, while RPI is likely to move deeper into deflationary territory," said David Kern, chief economist at the British Chambers of Commerce (BCC).

"Whatever the longer-term inflation risks may be, they are unlikely to materialise in the near future and can only be dealt with after the recession ends.

"The main priority must remain on easing the severe downturn in economic activity and to contain the relentless increases in unemployment. "

After the inflation news sterling rose against the dollar and moved close to its highest level for the year against the euro.

Sterling moved to a session high of $1.6414 against the dollar, up 0.6% on the day, and to 1.1834 euros.

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