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UK Inflation Holds Steady at One-Year Low of 2.4% in May

- Inflation in the UK held steady at one year lows in May, further diminishing the chances for a rate hike by the Bank of England in the coming months.

The Office for National Statistics reported that the annual rate of inflation rose by 2.4% in May, unchanged from the previous month, which was a one year low and in line with expectations.

Rising motor fuel prices produced the largest upward contribution to inflation, the ONS said.

There were also large upward effects from air and sea fares, which rose between April and May this year, but fell between the same two months a year ago, influenced by the timing of Easter.

Underlying inflation rose by 2.1% on a year-over-year basis, matching the previous month and also in line with forecasts.

Consumer prices rose 0.4% in May, unchanged from a month earlier and in line with forecasts.

The inflation figures were the latest indication that a cost of living squeeze in the UK is easing, even after data on Tuesday showing that wage growth slowed slightly in the three months to April.

The steep drop in sterling in the wake of the June 2017 Brexit referendum drove up the cost of imports, leading to a spike in inflation. Although it has pulled back from its November peak of 3.1%, it is still running above the BoE’s target of 2.0%.

With inflation falling back towards the BoE’s target and economic and wage growth cooling markets are taking the view that a rate hike by the BoE in the coming months is becoming increasingly less likely.

The retail price index, published at the same time as the inflation data, ticked down to 3.3% from 3.4% year-on-year. The index is used to price some government debt.

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