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UK inflation falls to 0.5%

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CPI inflation fell to 0.5% in May, down from 0.8% in April, according to the latest figures from the ONS. The rate was last lower, at 0.3%, in May 2016 in the lead up to the Brexit referendum. CPIH - the ONS' headline measure which includes owner occupiers’ housing costs - fell from 0.9% in April to 0.7% in May. This is also the lowest reading seen since May 2019 when the 12-month rate was also 0.7%. The rate was last lower, at 0.6%, in February 2016. The ONS says falling prices for fuel and a variety of recreational and cultural goods resulted in the largest downward contributions to the downward change.

The figures are unsurprising given the devastating effect the pandemic has had on the economy, but further lockdown relaxations and economic stimulus could start reversing this trend. There is hope that consumer demand could slowly return, especially as a result of this week's reopening of the retail sector; however, the extent of this will likely be undermined by the restrictions still in place, as social distancing makes it very difficult for many businesses to operate effectively. Also, further central bank intervention is expected - the Bank of England is anticipated to add another £150bn of quantitative easing and hold rates at a record low of 0.1%. It will be interesting to see the effect all this has on subsequent months' figures.

Posted by MMB Finance Swindon on 17 June 2020