UK unemployment stays at lowest since 1975

Prices are also on the rise for clothing, up 0.6% compared with a fall of 0.3% a year ago, with children's clothing seeing the biggest increase.

"And the biggest price rises in four years won't provide any comfort", TUC general secretary, Frances O'Grady, said.

The increase in inflation has exceeded the forecast the Bank of England issued last month, when it indicated it expected inflation would peak at 2.8% this autumn.

Auto sales remained sluggish for the month, falling 0.2 percent in May, while electronics and appliance sales saw their largest monthly decrease in more than seven years, plunging 2.8 percent. The three categories account for about 48 per cent of the harmonised CPI basket.

The Office for National Statistics (ONS) said the main upward pressure in May came from "recreational and cultural" goods and services, particularly games, toys and hobbies, as well as package holidays. The cost of gasoline fell 6.2% in the month, and fuel oil prices fell 6.4%.

Consumer Price Index inflation unexpectedly hit 2.9 per cent last month, which was the highest level since June 2013 when it last stood at that level. The pound slipped against the dollar to $1.2722 on weaker-than-expected United Kingdom earnings data which showed average weekly earnings rose 2.1% year-on-year in April and just 1.7% year-on-year for the ex-bonus number, the lowest in more than two years. May's decline was the largest since January 2016 and confounded economists' expectations for a 0.1 per cent gain.

"On the other hand, with wage growth continuing to slow and inflation still rising real pay is down on the year".

The pound fell slightly after the ONS data, possibly reflecting a slowing of the surge in prices faced by factories, which hints at slower inflation ahead for households. The Federal Reserve seeks to manage interest rates to promote moderate annual gains in inflation of 2 percent.

"The balance of probability suggests the Bank will continue to "look through" higher inflation and leave rates on hold to support the economy, but if inflation continues to surprise we could start to see members revising their positions".

The RBI cut inflation estimates for the financial year to March 2018 after retail inflation dipped to an historic low in April.

The increase in the cost of living remains above the Bank of England's 2% target, and is likely to raise pressure on the Bank's Monetary Policy Committee (MPC) to consider hiking interest rates beyond 0.25% when it meets later this week.

Food inflation is easing further in June on a good summer rabi harvest and this should pull June inflation below 2 per cent.