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UK Inflation Moves To 2% Target On Lower Air Fares, Car Prices

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UK inflation slowed to the central bank target in May, thanks to lower costs for air travel and falling car prices, data from the Office for National Statistics showed Wednesday.

Consumer price inflation hit the Bank of England's target of 2 percent in May versus 2.1 percent in April. The rate also matched economists' expectations.

The annual decline was largely driven by easing fares for transport services, particularly air fares due to the timing of Easter and falling car prices. Partially offsetting, upward contributions came from higher costs of range of games, toys and hobbies.

On a monthly basis, consumer prices gained 0.3 percent versus 0.4 percent rise a year ago. Monthly inflation also came in line with expectations.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed to the weakest in more than two years to 1.7 percent in May from 1.8 percent in the previous month.

A number of transitory factors such as the recent weakness in sterling may lift consumer prices back above target in the months ahead, Suren Thiru, head of economics at the British Chambers of Commerce, said.

"However, as firms unwind historically-high stock levels, economic conditions are expected to weaken, which should keep inflation close to the Bank of England's 2 percent target for some time to come," Thiru added.

The BoE is set to keep its key rate and quantitative easing unchanged at the June monetary policy meeting. The announcement is due on Thursday.

The bank is expected to stick to its reasonably hawkish mantra at tomorrow's meeting, James Smith, an ING economist said. However, it is unlikely the Bank will get an opportunity to tighten further this year.

The consumer prices index including owner occupiers' housing costs advanced 1.9 percent annually in May, slower than the 2.0 percent increase in April, the ONS reported.

Another report from ONS showed that the factory gate inflation slowed in May due to weak petroleum prices.

Output price inflation slowed for the third straight month in May, to 1.8 percent from. 2.1 percent in April. But this was slightly above the forecast of 1.7 percent.

Month-on-month, output prices rose 0.3 percent, the same rate as seen in April but faster than the expected 0.2 percent.

Further, data showed that input price inflation eased sharply to 1.3 percent from 4.5 percent in April. This was the lowest since June 2016. Nonetheless, the rate was above the forecast of 0.8 percent.

On a month-on-month basis, input prices remained flat versus the expected growth of 0.2 percent.

Separately, the ONS said house price inflation slowed to 1.4 percent in April from 1.6 percent in March. The lowest annual growth was in London, where prices fell 1.2 percent over a year ago.

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