Sterling falters as inflation falls to 2.8 per cent

Sterling has faltered in forex trading today on news UK inflation rates have slipped to 28 per cent according to May data.

The Office for National Statistics (ONS) reports that the Consumer Price Index (CPI) benchmark dropped from April's three per cent to the slowing of food and fuel prices.

This is a two-and-a-half year low for inflation in the UK, which was at 5.2 per cent in September 2011 due to the waning impact of the VAT increase in 2011 and falling food, energy and commodity values.

In addition to the CPI, the Retail Prices Index also retreated from March's 3.5 per cent to 3.1 per cent.

This latest fall in inflation is unexpected, as the consensus among economists was that May's rate would remain static.

And the index could drop lover in the months to come, according to analysts.

Deutsche Bank's George Buckley told the BBC this CPI inflation decrease may raise the chances of the Government initiating a further round of quantitative easing (QE).

"We expect £50bn with a sizable risk of a 25 basis point rate cut to boot," he stated.

The current level of QE stands at £325 billion and was last increased by the Bank of England's (BoE) Monetary Policy Committee in February of this year.

It has been predicted by the BoE that CPI inflation will remain over the two per cent target rate for the coming year or so.

Last month, the figure moved to within one per cent of this, meaning BoE governor Sir Mervyn King did not have to send an open letter of explanation to chancellor George Osborne.

At 12:45 BST, the pound was up by less than 0.1 per cent versus the dollar, buying $1.5 for every £1.

In forex trading with the euro, sterling retreated 0.2 per cent to €1.24.