Improved Economic Indicators for May – Inflation Falls and Retail Sales Rise

Two pieces of good economic news as the UK carries on making slow but steady economic progress. The formation of the Coalition to give our country a stable government has clearly been a significant factor in maintaining confidence in the UK in the international financial markets. It is essential that the interest rate the government has to pay on its continued borrowings are kept low. These figures will make that more likely.

Inflation Falls

Figures released on 19th June by the Office of National Statistics (ONS) show that in May the UK rate of inflation fell to a two-and-a-half year low owing to slowing fuel and food prices.

The Consumer Prices Index (CPI) measure fell to 2.8% in May from 3% in April, and the Retail Prices Index (RPI) measure fell to 3.1% from 3.5% in March, the ONS said.

Inflation has fallen from 5.2% last September due as the impact of the VAT rise in 2011 comes out of the figures and energy, food and commodity prices continue to fall. However, this fall in inflation for May was unexpected, as the consensus among economists had been that the rate would actually be unchanged.

Now analysts are saying that prices are likely to fall further in the coming months.
"Expect further falls in inflation as energy bills rise less over the summer versus last year," said George Buckley at Deutsche Bank.
"The fall in CPI inflation to 2.8% in May increases the likelihood of more quantitative easing (QE). We expect £50bn with a possible 25 basis point interest rate cut as well." Philip Shaw at Investec agreed

The May inflation figures show that consumers are starting to benefit from a fall in recent months in the cost of crude oil. Average diesel prices decreased, dropping 4.4p to 143.3p between April and May, compared with a 0.7p rise last year to 141.5p.

Retail Sales Volumes Rise.

UK retail sales volumes rose 1.4% in May from April, slightly better than forecasted.

The ONS said sales of clothes and shoes had boosted volumes in May. A monthly rise of 1.2% had been expected. Analysts said the ONS data was also reflected in sales figures reported by retailers in recent weeks. On a year-on-year basis, sales volumes were up 2.4% in May, the latest figures showed