UK Inflation Rate Reported at 2.5 Year Low
THE TAKEAWAY: UK CPI drops 0.1% during May -> UK inflation at lowest rate in 2.5 years -> Sterling drops further today from earlier week high
The UK consumer price index fell 0.1% during the month of May, lowering the annual inflation to 2.8%, the smallest inflation rate in 2.5 years. The drop below last month’s 3.0% annual inflation rate further adds to pressures on the BoE to add to stimulus in its July meeting.
The drop in UK CPI was unexpected as the average prediction among analysts was for a 0.1% rise in costs for the month. The retail price index was also unmoved during May, as opposed to analysts’ expectations for a 0.2% rise. Food and non-alcoholic drinks saw a 0.3% rise in prices during May, while transport prices dropped -0.8%. Household prices also went up 0.6%, according to the UK Office for National Statistics.
Although the UK interest rate is still above the BoE’s target 2.0% rate, the lowest rate in years makes room for arguments for further stimulus. BoE Governor Mervyn King said last week that pressures for stimulus are growing as the Euro crisis pressures the UK economy.
GBD/USD has significantly dropped in today’s session from highs set at the start of the week. The pair only slightly fell following the lower than expected inflation rate.
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