Inflation outlook improves

The near-term inflation outlook has improved significantly in recent weeks. Inflation has fallen below 3% for the first time since the end of 2009. It will come under further downward pressure from the recent drop in oil and petrol prices. And we still expect core inflation to fall sharply. Although the core rate nudged up in May, this reflected base effects – the seasonally adjusted monthly change was weak. Inflation could now fall as low as 0.5% or so at the start of next year.