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UK Inflation Rebounds More Than Expected in May

Tuesday, 18 Jun 2013 | 4:32 AM ET
Laurie Noble | Stone | Getty Images

British consumer price inflation rebounded by more than expected in May due to a record rise in air fares and higher fuel prices, raising questions about whether April's seven-month low was simply a blip.

The Office for National Statistics said annual CPI rose to 2.7 percent in May from April's 2.4 percent, above economists' forecasts of 2.6 percent in a Reuters poll.

(Read More: High Inflation a 'Permanent Fixture' in the UK: Economists)

Last month the Bank of England forecast that inflation would fall faster than it previously thought, but Tuesday's data raises the prospect that it may take longer to return to its 2 percent target if it marks the start of a trend.

Economists had expected some rise in inflation this month as there had been a sharp fall in the annual rate of inflation in May 2012, but the statistical effect of this was boosted by a record rise in air fares for the time of year.

(Read More: UK Economic Growth Will Beat Expectations: Industry Group)

Air fares rose by 22 percent between April and May, the biggest jump between these two months since comparable records started in 2001.

Nonetheless, many economists still believe the overall outlook for price rises is more muted than a few months ago, due to stronger sterling and lower commodity prices.

This potentially gives incoming Bank of England Governor Mark Carney more scope to take action to stimulate the economy when he takes over from Mervyn King, who retires at the end of June.

(Read More: Short Story: Sterling Expected to Fall Further)

Last month the central bank forecast inflation would peak at just over 3 percent later this year before falling back to 2 percent by early 2015.

Separate figures published by the ONS on Tuesday also showed a relatively muted outlook for consumer price inflation. Factory gate prices - which act as a leading indicator for some parts of CPI - rose by an annual 1.2 percent, a smaller increase than economists had forecast.

But Britain's unusually cold weather this year may push up food prices, with the ONS reporting a 19.2 percent annual rise in the cost of home-grown food, and potatoes and fresh vegetables particularly hit.

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