U.K. inflation surged to the fastest pace in nearly five years last month, according to data published Tuesday, as the pound's post-Brexit vote collapse continues to drive import prices higher.
Consumer prices rose at a 2.9% clip in May, the Office for National Statistics said Tuesday, up from 2.7% in April and much faster than the 2.7% rate anticipated by economists. So-called core inflation, which strips out volatile prices for food and energy, rose at a 2.6% pace, the ONS said, the fastest since 2012.
The pound, which had risen around 0.3% against the U.S. dollar since yesterday's close was little-changed at 1.2708 following the data release, which is certain to raise questions over the Bank of England's tolerance for faster consumer price increases when matched against a slowing economy when it meets Thursday in London.
"As the Committee has previously noted, there are limits to the extent to which above-target inflation can be tolerated," the Bank said last month. "The continuing suitability of the current policy stance depends on the trade-off between above-target inflation and slack in the economy, as well as the prospects for inflation to return sustainably to target."
The pound has fallen some 11% against the U.S. dollar between May 2016 and last month as investors reacted to Britain's vote to leave the European Union last June and trimmed bets on further rate increases from the BoE as the economy slowed as a result.
U.K. economic growth slowed more sharply than expected in the first three months of the year, according to a detailed estimate from the ONS published last month, as consumers trimmed discretionary spending amid searing inflation and increased political uncertainty linked to the country's decision to leave the European Union last June.
The U.K. economy, the world's fifth-largest, grew at a 0.2% clip in the three months ending in March, down from the so-called flash estimate of 0.3% published on April 28 and the 0.7% pace recorded in the final three months of last year. The ONS said the country's service sector led the slowdown with growth of 0.3% compared to 0.8% in the final three months of last year.
"Consumer facing industries such as retail and accommodation fell and household spending slowed," the ONS said. "This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services & finance continued to grow strongly."
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