Inflation FALLS to 3.4 per cent

Core inflation, which strips out volatile items such as energy and food, stayed stubbornly high, raising questions over how soon interest rates might be cut.

Despite the fall, many families continue to feel the squeeze, with prices for essentials such as food, transport and services still significantly higher than they were just a few years ago.

The Bank of England is due to announce its latest interest rate decision this week, and today’s figures could influence whether policymakers choose to hold or lower borrowing costs.

However policymakers are still almost certain to hold interest rates at 4.25 per cent at their meeting despite May’s decline in the consumer prices index (CPI), but it could raise hopes for cuts for the summer and autumn.

The decline in inflation means prices were still rising in May, but at a slower rate than in April when a raft of bills increased for households up and down the country.

Since releasing the data, the ONS said that an error in vehicle tax data collected meant April’s CPI rate should have been 3.4 per cent – but that it was not revising the official figure.

The energy price cap, set by regulator Ofgem, rose by 6.4 per cent in April, resulting in bills for a typical household rising by £9.25 a month.

Sanjay Raja, senior economist for Deutsche Bank, said he was expecting inflation across transport services to have eased last month following a jump during the Easter holidays in April.

He forecast a fall in the price of airfares in May, compared with April, as well as some train and coach travel costs, while package holiday prices are also set to retreat following a monthly rise.

On the other hand, Sanjay said food inflation is set to “pick up steam” in May, particularly due to rising fresh food prices, while he is also anticipating increases to clothing and furniture prices following Easter sales.