Inflation fall unlikely to prompt interest rate cut – Daily Business

Inflation in the UK fell marginally to 3.4% last month from 3.5% in April in line with expectations which is likely to see the Bank of England leave interest rates unchanged.

The bank’s policymakers will announce the latest interest rate decision tomorrow with analysts expecting it to remain at 4.25% despite May’s slight fall in the consumer prices index (CPI).

A slowing of economic growth will keep the option for rate cuts open, with the latest expectations focused on a cut in September.

The Office for National Statistics has admitted it overestimated April’s rise in CPI to 3.5% by 0.1 percentage point after the effect of higher car tax bills was exaggerated.

However, it left the original readings in place but said it would use the correctly weighted data in future calculations.

George Holmes, managing directorof Aurora Capital, said: “Flatlining inflation is the worst of both worlds for small businesses. Costs aren’t rising fast enough to force the Bank of England’s hand, but they’re not falling fast enough to provide relief either.

“There’s a risk the Bank waits too long. If growth stalls before rates fall, the damage to small business confidence could be deep and lasting.”