Inflation holds steady for another month but economists expect movement after 23 June - whatever the result

 
Jake Cordell
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Petrol prices were a touch higher in May compared to last year, but not enough to shift the headline rate of inflation
Petrol prices were a touch higher in May compared to last year, but not enough to shift the headline rate of inflation (Source: Getty)

Inflation remained stuck near record lows in May as cheaper clothes, food and entertainment offset the effects of rising fuel costs.

Prices went up by 0.3 per cent over the year, as measured on the consumer prices index (CPI), according to figures released by the Office for National Statistics (ONS) this morning. That was unchanged from the rate of inflation recorded in April and marks the 17th consecutive month where inflation has been below one per cent.

The rate of core inflation, which strips out the most volatile goods and some believe is a better barometer of where prices are heading over the medium-term, was also steady at 1.2 per cent.

Economists had been predicting inflation would pick up marginally to 0.4 per cent over the month, though any signs of rising prices in the UK economy will now have to wait until after the EU referendum.

The main categories in which prices went up were transport, led 0.9 per cent higher as petrol was a few pennies a litre dearer. Mobile phone bills and restaurant prices also rose. However, food prices dropped by 0.4 per cent between April and May and clothes were also 0.2 per cent cheaper by the end of the month.

Inflation has been below the Bank of England's official two per cent target since December 2013 and is not predicted to return above this level until the middle of 2018.

Experts suggested whatever happens in the EU vote, inflation will return, to some degree, to the UK economy, after 23 June.

Read more: We asked 12 experts to predict what the FTSE 100 and sterling will do before the EU referendum

"Inflation looks set to remain fairly subdued for most of the second half of this year. But inflation should gather more pace next year, regardless of which way the EU referendum vote goes next week," said Paul Hollingsworth of Capital Economics.

A vote to leave the EU could heap pressure on the value of sterling - already experiencing the swings of the referendum campaign - which could cause inflation to return quicker than currently anticipated. The Bank of England has warned this would put it in a difficult position as it would need to calm economic uncertainty and, potentially, deal with an economic contraction, with inflation also on the rise.

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