INFLATION slumped to a four-year low last month but house prices surged in April, according to data that clouded the view for Bank of England policymakers gauging the economic recovery.
Consumer price inflation dropped to 1.5 per cent in May from 1.8 per cent in April, its lowest since October 2009, after the first year-on-year fall in food prices since 2006, the Office for National Statistics (ONS) said.
But separate data from the ONS showed house prices soared 9.9 per cent in April, their biggest annual rise since June 2010, heightening concern that a bubble may be developing in the property market.
“The divergent data will further complicate the discussion about the appropriate timing of the first increase in interest rates from their current record low,” said Chris Williamson, the chief economist at Markit.
The Bank of England’s Financial Policy Committee is widely expected to take steps to curb the risks to financial stability from rapidly rising house prices and high levels of debt.
While the economy has been growing at a rapid pace, low inflation has allowed the BoE to keep interest rates at their record low of 0.5 per cent.
But that could change before the end of the year.
BoE Governor Mark Carney said last week that rates might rise sooner than markets had previously expected, though for now Britain’s economy still had room to grow without pushing up inflation.
David Miles, who sits on the Monetary Policy Committee with Carney, said that interest rates have a strong chance of rising before next May.
The ONS said inflation in May was subdued by the first year-on-year drop in food prices since 2006, as well as lower clothing prices and cheaper air fares. Food prices fell by 0.6 per cent, which may have been caused by a supermarket price war.