UK inflation tipped to stay at 4.5%

Inflation in the UK is expected to have remained at more than twice the Bank of England's target when official figures are published today.

Economists predict the Office for National Statistics (ONS) data will show the consumer prices index (CPI) measure of inflation for May will be held at 4.5% - its highest level for more than two years.

It will be the 18th month in a row that inflation has been above the Bank's target of 2%.

Inflation shot up from 4% in April as transport costs went up in response to rising oil prices and increased demand for travel around the Easter holidays and royal wedding.

Although transport costs are thought to have eased in May, this is expected to have been offset by food and energy price hikes.

The unchanged inflation figure will ease the pressure on the Bank of England to raise interest rates from their historic low of 0.5%, although inflation is still forecast to hit 5% later this year.

The rate is forecast to drop back towards target by 2013 and the Bank has concluded that there is little evidence that the UK is slipping into a damaging inflationary spiral.

It is concerned that if British people expect inflation to remain high, they will put more pressure on employers to raise wages, which will in turn lead to higher prices, known as a wage-price spiral.

However in a quarterly bulletin released this week, it reported few signs that inflation expectations have affected price or wage setting behaviour.

Economists do not expect interest rates to rise until November at the earliest.

The CPI figure for May is expected to reflect recent rises in the price of food. Last week, the British Retail Consortium said food inflation hit a 23-month high of 4.9% in May, up from 4.7% in April.

Gas and electricity prices are also higher than a year ago after all the 'big six' suppliers put prices up over the winter.

Allan Monks, an economist at JP Morgan Chase, said: "A surge in transport services prices in April prompted a significant upside surprise in inflation last month. But these prices appear set to drop back in May and exert downward pressure on inflation.

"Despite this, we expect the CPI to hold at 4.5% next week as the contribution from food and energy prices will increase in May, offsetting the pull down from softer transport prices."

The retail prices index measure of inflation, which includes housing costs, is expected to be flat at 5.2%.