UK inflation slows in May but food prices jump
LONDON: British inflation slowed as expected in May, pulled down by air fares which leapt in April and the correction of a tax data error, although food prices shot up at the fastest rate in more than a year.
Consumer prices rose in annual terms by 3.4 per cent in May, the Office for National Statistics said on Wednesday, just as a Reuters poll of economists and the Bank of England had predicted.
Services price inflation - a crucial metric for the BoE - cooled to 4.7 per cent from 5.4 per cent in April, matching the BoE's forecast for May. The Reuters poll had pointed to a reading of 4.8 per cent.
Earlier this month the ONS said April's headline consumer price inflation reading of 3.5 per cent had been overstated by 0.1 percentage points due to an error in car tax data from the government.
April's figures were not amended, but the correct data was used for May's readings.
Air fares fell sharply after an Easter holiday spike in April's readings.
The data are unlikely to shift interest rate expectations among
economists and investors who think the BoE will leave borrowing costs on hold when it announces its June policy decision on Thursday.
Sterling rose slightly against the US dollar after the ONS data release.
Gas, electricity and water prices rose in April alongside higher taxes on employers, causing inflation to leap from 2.6 per cent in March. A rise in oil prices since the start of the Iran-Israel conflict last week could cause inflation to rise again.
Food prices rose by 4.4 per cent in the 12 months to May, the biggest increase in over a year, the ONS said, a blow for low-income households.
Some BoE officials have said they disagree with the central bank's key assumption reached at its May meeting that the recent climb in inflation will not have longer-running effects on pricing behaviour.
Chief Economist Huw Pill said last month the pace of interest rate cuts was too fast given still strong wage pressures on inflation, but his vote in May to keep borrowing costs on hold was likely to be "a skip" not a halt to rate cuts.
Market pricing on Tuesday pointed to an 87 per cent chance that the BoE will leave rates on hold this week, with two 0.25 percentage-point cuts priced in by the year's end.
The BoE lowered rates by a quarter point to 4.25 per cent on May 8 in a three-way split vote, with two Monetary Policy Committee members favouring a bigger cut and two - including Pill - favouring a hold.
The central bank said in May it expects inflation to peak at about 3.7 per cent later this year. Some economists think April might prove to be the high point, although the conflict in the Middle East poses a risk of stronger price pressures.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
39 minutes ago
- The Star
Analysis-US defence firms chase European military spending wave
PARIS (Reuters) -U.S. defence giants, backed by a strong Congressional delegation from Washington, used the Paris Airshow to showcase cutting-edge technologies and court European partners as they seek to tap into rising regional military spending. Many European nationshave pledged to significantly increase defence budgets in response to Russia's invasion of Ukraine and as U.S. President Donald Trump's administration has threatened to scale back military support for the region. That tension has been notably absent at this week's Paris Airshow, where U.S. lawmakers and arms manufacturers pledged greater transatlantic partnership as Europe ramps up spending on everything from artillery shells and fighter jets to missile defence systems. "We understand that our allies and partners are a force multiplier, so we are stronger when we are working together," U.S. Senator Jerry Moran, a member of Trump's Republican party, told reporters at the show, the world's largest aerospace and defence gathering. Moran, whose delegation was supporting U.S. weapons makers, said it was in Paris to send a message that the U.S. "is a dependable and reliable partner". The conciliatory tone stands in stark contrast to the Trump administration's recent string of disparaging remarks about Europe and its defence industry. "I think antagonising our allies does not make us stronger," Democrat Senator Jeanne Shaheen told reporters in Paris, expressing her desire to cement defence relations with Europe. RELIANCE ON U.S. Despite pledges by many European nations to boost military self-sufficiency, the continent remains heavily reliant on U.S. defence manufacturers. For instance, Europe buys American-made fighter jets and missiles from Lockheed Martin, Patriot missile defence systems from Raytheon Technologies and military jets and helicopters built by Boeing. In emerging military areas, like artificial intelligence, drones and satellite constellations, U.S. tech firms like Anduril, Palantir and Elon Musk's SpaceX are far ahead. U.S. firms are hoping to press home their advantage as European military spending surges, including through partnerships which are a way to soften any potential diplomatic tensions, delegates said. U.S. drone-maker Anduril and German defence giant Rheinmetall said on Wednesday they will link up to build military drones for European markets, in a sign of Europe leveraging American technology to boost military capabilities. Thomas Laliberty, president of Land & Air Defense Systems at Raytheon, said there were no easy replacements for its weapons in Europe and he expected the firm to maintain a long-term footprint on the continent, including through new partnerships. Laliberty said Raytheon was close to announcing a plan to manufacture Stingers - a lightweight air defence missile used by Ukrainian forces against Russia - in Europe. "For immediate needs, Raytheon is well positioned to support the European demand," Laliberty told reporters in Paris. "We have a very bright future here." Boeing, which won a contract from Trump's administration to develop the next-generation F-47 fighter jet this year, said Europe and the U.S. would remain long-term partners despite political wobbles, partly to hold off the Chinese threat. "Nobody can do it themselves - maybe the Chinese can try, but certainly the rest of us, we are going to have to work together," said Turbo Sjogren, Boeing's general manager for government services. "To do otherwise takes too long and will be unaffordable." The chairman of Italian aerospace and defence group Leonardo, Stefano Pontecorvo, added that U.S. participation in some European programmes would be "unavoidable" in coming years due to the defence technologies available to them. EUROPE TOO SLOW European rivals were bullish about their future growth prospects but said budget constraints and a lack of regional alliances were holding back progress, conceding that they would continue to need significant U.S. support. "National sovereignty matters but fragmentation is detrimental. We need to find a way to hit a balance," Leonardo CEO Roberto Cingolani told reporters on Tuesday. Jean-Brice Dumont, head of air power, defence and space at Airbus, said Europe's dependence on the U.S. was "very high". "Zero dependency on the U.S. I believe is a dream. We have a need for interoperability that drives some U.S. needs," said Dumont, whose firm makes the Eurofighter Typhoon fighter jet with Britain's BAE Systems and Italy's Leonardo, as well as Earth observation satellites and drones. Italian Defence Minister Guido Crosetto said Europe had "too much bureaucracy" compared to the U.S. and needed to adapt to a new military era of faster, cheaper and more nimble technology. "Either Europe adapts its industry to these new parameters - different from those with which it has lived until four years ago - or it will have huge competitors, and not only the American ones," he said. (Reporting by Joe Brock, Giulia Segreti, Paul Sandle and Tim Hepher. Editing by Mark Potter)
The Star
an hour ago
- The Star
AirAsia owner seeks jets for growth but restructuring first priority, CEO says
Capital A chief executive officer Tan Sri Tony Fernandes. PARIS: The CEO of Capital A Group, Tan Sri Tony Fernandes, said on Wednesday the owner of AirAsia is in talks to buy 50 to 70 Airbus A321XLR jets in coming months, but that the first priority is to complete the group's restructuring. Asia's largest low-cost carrier also remains in talks to buy 100 Airbus A220 or Embraer E2 regional jets but there is unlikely to be any announcement on plane orders at this week's Paris Airshow, he told Reuters in an interview. "I don't think there'll be an order at this air show. We're still doing a lot of work with Airbus and other (manufacturers).... I think we'll look to do something imminently, in the next 1-3 months," Fernandes said. "We want to make sure we clear out of our restructuring. The great thing is, we're back in the growth stage." The Malaysia-based low-cost carrier operates an all-Airbus fleet and is one of Airbus' biggest customers. The comments came after industry sources said AirAsia was in advanced discussions to place an order for at least 100 Airbus A220 regional jets at the Paris Airshow, with rival Embraer also vying for a chance to penetrate the all-Airbus carrier. AirAsia has also had an offer from China's COMAC, Fernandes said. AirAsia has previously said it was looking to add smaller planes for regional routes. One of Airbus' biggest customers with over 350 planes on order, AirAsia has not placed an order since before the pandemic, but ended a gap in deliveries by taking four Airbus jets last August, marking what it described as a new growth milestone. It has been steadily restructuring its order book as it faced financial difficulties. The company, hard hit by pandemic travel restrictions, was classified by Malaysia's stock exchange as financially distressed in 2022. It says it hopes to exit this so-called PN17 status by the middle of this year as it pursues a recovery. Capital A plans to sell its AirAsia aviation business to long-haul unit AirAsia X to consolidate long and short-haul operations under a single AirAsia brand. The group also needs consent letters from creditors, of which it has "virtually all of them," a Thai approval and to raise new capital. "I am hoping we can wrap up this process in June and complete everything by the end of July. We are getting closer and closer," Fernandes said. Fernandes said new investors had been "locked in," but declined to provide specific details ahead of any formal announcement. - Reuters
The Star
an hour ago
- The Star
Ringgit slips against greenback ahead of US rate decision and as Israel-Iran war escalates
KUALA LUMPUR: The ringgit ended lower against the greenback on Wednesday ahead of a decision on US interest rates later today and as the war between Israel and Iran continued to escalate. At 6 pm, the local note stood at 4.2500/2550 versus the greenback compared to yesterday's close of 4.2390/2475. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the key indicator to watch is the "dot plot' of the US Federal Reserve (Fed) funds rate, which essentially reflects the near-term outlook for US monetary policy. The Fed dot plot is a chart used by the US Federal Open Market Committee (FOMC) to show the individual interest rate forecasts of its members. "It appears that the Fed may not be keen to ease monetary policy, as the risk of higher inflation remains fairly evident with the ongoing conflict in the Middle East. Markets are bracing for the outcome of the FOMC meeting tonight. Meanwhile, the US Dollar Index (DXY) fell 0.3 per cent to 98.526 points despite the heightened geopolitical uncertainty,' he told Bernama. Mohd Afzanizam noted that the ringgit moved within a tight range today, hovering between RM4.2425 and RM4.2515. At the close, the ringgit traded mostly higher against a basket of major currencies. It rose against the British pound to 5.7218/7285 from 5.7413/7528, and gained vis-à-vis the euro to 4.8888/8945 from 4.8986/9084, but it depreciated versus the Japanese yen to 2.9322/9359 from 2.9271/9332 at Tuesday's close. The ringgit was mostly lower against its ASEAN peers. It dipped versus the Indonesian rupiah to 260.5/260.9 from 260.2/260.8, eased against the Singapore dollar to 3.3074/3115 from 3.3068/3137, and was down vis-à-vis the Thai baht to 13.0240/0449 from 13.0114/0443 previously. However, it rose against the Philippine peso to 7.46/7.48 from 7.48/7.49 at yesterday's close. - Bernama
