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Investing.com -- UK inflation was slightly stronger than expected in May, falling from 3.5% to 3.4%, above the consensus forecast of 3.3% but in line with the Bank of England’s projection.
Core inflation decreased from 3.8% to 3.5%, meeting consensus expectations. Services inflation dropped more significantly from 5.4% to 4.7%, below the consensus forecast of 4.8% and matching the BoE’s prediction.
Within services, airfares saw the most dramatic decline, plunging from 16.2% inflation to -3.9%, driven by a 5% monthly fall between April and May due to Easter timing. Housing services continued their downward trend with rent inflation easing from 6.3% to 6.1%.
Transport services excluding airfares fell from 8.2% to 4.8%, while services for personal transport equipment decreased due to corrected Vehicle Excise Duty figures.
Food inflation rose from 3.4% to 4.4%, potentially reflecting the impact of increased employment costs. Core goods inflation increased from 1.1% to 1.6%, driven by household goods and small rises in vehicles and recreation goods.
Energy costs continued to fall, with inflation in this category moving from -0.9% to -1.7% due to declining weekly petrol prices.
The Bank of England is expected to hold rates at its June meeting. BofA anticipates the next rate cut in August, with further reductions in September and November bringing rates to 3.5%.
The bank forecasts a dovish pivot in the second half of the year, supported by continued progress in domestic inflation, easing pay settlements, lower inflation expectations, and a looser labor market.
BofA expects inflation to continue its downward trend, forecasting a decrease from 3.4% to 3.3% in June and services inflation falling from 4.7% to 4.5%.
The bank views April’s inflation rise as erratic, with the underlying trend showing continued progress in domestic inflation control, though recent geopolitical developments could pose risks of oil price shocks.
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