Fuel price jump fails to budge UK inflation from one-year low
* UK CPI 2.4 pct in May, joint lowest since March 2017
* Fuel prices show biggest monthly increase since 2011
* BoE (Shenzhen: 000725.SZ - news) and most economists expect CPI to fall this year
* Markets think August BoE rate rise hangs in the balance
(Adds further reaction, graphic)
By David Milliken and Sarah Young
LONDON, June 13 (Reuters) - British inflation held at a
one-year low in May despite a jump in fuel prices, leaving the
chances of a Bank of England interest rate hike over the coming
months finely balanced.
Consumer price inflation remained at 2.4 percent in May, its
joint lowest annual rate since March 2017, the Office for
National Statistics said on Wednesday. Economists had forecast
2.5 percent inflation in a Reuters poll.
Inflation hit a five-year high of 3.1 percent in November,
pushed up by the pound's tumble after June 2016's Brexit vote
and contributing to a squeeze on consumer spending that has
slowed Britain's economy.
The BoE expects inflation to pick up again in the coming
months after rises in oil prices and energy bills, then fall
back towards its 2 percent target.
The odds on a BoE rate increase in the next few months
lengthened a bit after Wednesday's figures on signs that any
acceleration in inflation would be limited, Scotiabank economist
Alan Clarke said.
Other recent data, pointing to only a slow recovery in the
economy after a weak start to 2018, have also suggested the BoE
is unlikely to see an urgent need to raise rates.
"It's just not screaming 'hike, hike, hike' now," Clarke
said. While inflation might rise to 2.6 or 2.7 percent in June,
it was likely to resume falling in July and be back at the BoE's
target of 2 percent by the end of the year.
"There's plenty more downside to come," he said.
But Andrew Sentance, a former BoE policymaker who advises
accountants PwC, said inflation would stay around 2.5 percent.
"The UK (is) close to the bottom of the G7 growth league and
close to the top of the inflation league. The combination of
Brexit and the Bank's reluctance to raise interest rates is
creating a very uncomfortable position for the UK economy," he
said.
The BoE raised rates in November, the first increase since
before the 2008 financial crisis. But weak first-quarter
economic growth caused it to postpone an increase that had been
widely expected for May.
Most economists polled by Reuters have said they expect a
move in August, but soft April data on wages and industrial
output have caused some to have doubts. Clarke (Toronto: CKI.TO - news) said markets
priced in only a 50 percent chance of an August rise.
Fuel prices rose in May by 3.8 percent, the biggest monthly
amount since January 2011. Manufacturers are paying 40 percent
more for oil than they were a year ago.
However, the fuel price rise was offset by a drop in the
cost of computer games and smaller rises in energy bills than a
year earlier.
Manufacturers' raw-materials costs were 9.2 percent higher
than in May 2017, boosted by the biggest monthly jump - 2.8
percent - since October 2016 and above all forecasts in a
Reuters poll.
(Editing by Toby Chopra, Larry King)