U.K. Inflation Remains Stable At 0.3%

(RTTNews) - U.K. inflation held steady at a very low level in May as a rise in transport costs largely offset the decline in clothing and footwear prices. Meanwhile, factory gate prices continued the decline that started in mid-2014.

Inflation came in at 0.3 percent, the same rate as in April, data from the Office for National Statistics showed Tuesday. The figure was forecast to rise to 0.4 percent.

Inflation has been below the 2 percent target for more than two years.

Rises in transport costs, restaurant and hotel bills and the price of telecommunication services were the main upward contributors to inflation. Meanwhile, downward contribution came from clothing and footwear.

Month-on-month, consumer prices gained 0.2 percent after rising 0.1 percent in April. Economists had forecast a 0.3 percent increase.

Core inflation that excludes prices of energy, food, alcoholic beverages and tobacco, held steady at 1.2 percent.

David Kern, chief economist at the British Chambers of Commerce, said inflation will remain below the 2 percent target until well into 2017. Against this background, any thought of raising interest rates will be firmly off the agenda.

On the assumption that the U.K. votes to stay in the EU, IHS Global Insight economist Howard Archer expects the Bank of England's eventual next move to be to raise interest rates to 0.75 percent from 0.50 percent - but not until May 2017.

Another report from the ONS showed that output prices declined 0.7 percent year-on-year in May, the same rate of decrease as seen in April. Prices were expected to fall 0.5 percent.

This index has now seen negative movements since July 2014. The latest annual decline was driven by petroleum product prices, which slid 10 percent in May.

On a monthly basis, output price inflation eased to 0.1 percent from 0.3 percent. Economists had forecast the rate to remain at 0.3 percent.

At the same time, input prices dropped 3.9 percent annually, much slower than April's 7 percent decline and the expected fall of 5.1 percent.

Month-on-month, input prices climbed 2.6 percent, which was the fourth consecutive rise in prices.