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Inflation falls back to 2% as air fares dive after Easter | Business News



The rate of inflation has fallen to 2% as the cost of air travel dived in May following increases ahead of Easter the previous month.

Figures from the Office for National Statistics (ONS) showed the consumer prices index (CPI) falling back from 2.1% in April to hit the Bank of England’s target rate.

The figures were announced just a day before the Bank is due to announce its latest interest rate decision – widely expected to be no change.

It has been under little pressure to raise or cut rates given relatively stable inflation this year and a resilient economy despite Brexit uncertainty and the effects of the US-China trade war.

The Bank of England is currently is forecasting growth of 1.7% for the next two years
The Bank of England reveals its latest interest rate decision on Thursday

The latter factor is hurting the euro zone to the extent the European Central Bank is on course to boost stimulus because inflation is stubbornly low.

One piece of information in the wider ONS figures suggested the Bank may come under pressure later this year to consider a rate cut rather than any increase if Brexit and the trade war continue to drag on demand and therefore growth.

Producer prices – a forward measure of inflation – showed cost pressures at factories hitting a three-year low.

The ONS cited slower rates of growth for transport services in May for the decline in the CPI rate.

While the largest contribution came from air fares, it also pointed to declines in rail, road and sea transport along with car costs.

Upwards pressure came from rising prices for a range of games, toys and hobbies, furniture and furnishings, and hotel room costs.

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