Inflation falls to 2.5%

The inflation rate fell to 2.5% in May, according to figures released by the Office for National Statistics. While this is a significant drop, it is still above the government’s target of 2%.

Analysts expect the Bank of England to raise interest rates later this year, to ensure that the inflation rate meets the government target.

Although the Monetary Policy Committee voted to keep interest rates at 5.5% at their last meeting, the Bank of England governor Mervyn King warned that further raises were not far off.

He said: "It would be unwise to borrow so much that the repayments are affordable only if interest rates stay at their existing levels."

Inflation rates have now been above the government target for 13 months.

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