UK inflation shows surprise fall

Falling petrol prices meant the Consumer Price Index (CPI) rate of inflation dropped to 2.8 per cent in May, down from 3 per cent in April and the lowest level since November 2009. City analysts expected the rate to remain unchanged.

Inflation has fallen from 5.2 per cent last September and with further declines expected this year the Bank of England should have more leeway on its quantitative easing (QE) programme, which currently stands at £325 billion and was last increased by members of the Monetary Policy Committee in February.

As well as announcing radical measures to prevent a second credit crunch, Governor Sir Mervyn King’s annual Mansion House speech last week gave a strong hint that more QE was on the cards.

Analysts said it looked likely that further action could be taken as soon as July 5, when the committee concludes its next two-day meeting.

Vicky Redwood, UK economist at Capital Economics, said: “These figures might help to tip any of the more reluctant members into voting for more stimulus at the upcoming meeting.”