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Investing.com -- U.K. inflation is expected to continue its downward trend in May, with Barclays (LON:BARC) forecasting a slowdown in both headline and core measures amid fading temporary price pressures and data corrections.
Barclays expects headline inflation to decelerate to 3.3% year-over-year in May, down 0.2 percentage points from April, as temporary Easter-related price increases and an Office for National Statistics error on Vehicle Excise Duty are reversed.
Core inflation is forecast to slow to 3.4%, with services inflation dropping to 4.7% from 5.4% in April.
The bank anticipates airfares will contract by 22% month-over-month, reversing most of April’s 27.5% Easter-driven increase, while the correction of the vehicle excise duty error should remove 0.25 percentage points from overall services inflation.
Food, alcohol and tobacco inflation is projected to accelerate to 4.6% year-over-year, up 0.6 percentage points, due to base effects from particularly weak inflation in May last year.
Core goods inflation is expected to rise slightly to 1.2%, with durable goods bouncing back from April’s weakness despite soft signals from recent Autotrader data.
The projected figures would represent an undershoot of the Bank of England’s May forecast, particularly in core goods where Barclays expects the gap to widen to 0.7 percentage points.
Energy prices are forecast to contract 0.5% month-over-month and 1.4% year-over-year, driven by softening transport and liquid fuel prices.
Barclays believes these inflation figures, combined with weakness in labor market data, will reassure the Bank of England that disinflation remains on track, potentially allowing for interest rate cuts in the second half of this year.