UK inflation reaches target for the first time in nearly three years

Image source, Getty Images

  • author, Tom Espiner
  • Role, BBC Business Correspondent

The inflation rate reached the target set by the Bank of England for the first time in nearly three years.

Official figures showed prices rose by 2% in the year to May, down from 2.3% the previous month.

The economy is a major point of discussion in the run-up to the general election scheduled for July 4, with all the major parties fighting over how to keep the cost of living under control.

The Conservatives said their “difficult decisions” had paid off, but Labor said the pressures on the family’s finances “remain acute”.

This comes ahead of the Bank of England’s decision on UK interest rates on Thursday.

The bank is expected to keep interest rates at 5.25% – the highest level in 16 years – for the seventh meeting in a row. Markets are not betting on a reduction until August.

The decline in May’s inflation rate was driven by a slowdown in price increases for food, soft drinks, entertainment, culture, furniture and household goods.

However, gasoline prices are on track to rise again, and food prices are still 25% higher than they were at the start of 2022.

Inflation peaked at 11.1% in October 2022, as the Russian invasion of Ukraine caused food and fuel prices to rise, but has fallen steadily since then.

Although inflation is falling, this does not mean that the prices of goods and services in general are falling, but rather that they are rising at a slower pace.

The Bank of England also raised interest rates in an attempt to curb consumer demand, raising mortgage costs for homeowners in the process.

“Pressures on family finances remain severe.”

May’s figures are the last major official economic statistics before the general election campaign and have sparked great controversy among the main parties.

The Conservatives claim the numbers support their story of economic transformation – although the question for them politically is whether they will get any credit for the decline.

The UK economy has had a “soft landing with inflation higher than almost any other major economy, and now lower than almost all of our major competitors,” Treasury Secretary Jeremy Hunt told reporters.

He added: “This would not have happened given the Labor Party’s refusal to condemn wage strikes in the public sector, and that would have meant higher inflationary wages and inflation continuing for a longer period.”

But Labor continues to press concerns about the ongoing cost of living crisis.

Rachel Reeves, Labour’s shadow chancellor, said: “Unlike Conservative ministers, I will not pretend that everything is fine and that the cost of living crisis is over, because I know that the pressures on household finances remain acute.”

“Rishi Sunak’s boasts will ring hollow to countless families who are seeing their mortgages skyrocket and shopping prices painfully higher than they were just a few years ago.”

“You can’t pass all the costs on to the customers.”

Comment on the photo, Gary Wildman says his costs have risen dramatically

Gary Wildman, owner of John Wildman & Sons butcher shop, told the BBC that he had seen prices rise at the shop he started with his father 31 years ago in Rustington, West Sussex.

“Prices are probably 10 to 15% higher than they were at the start of Covid, but they are definitely holding steady now,” he told the BBC.

However, he said some products like pork were still rising while store energy bills were higher than they were a few years ago.

“You’re taking a hit on your margins,” he said. “You can’t pass all the costs on to the customers, otherwise the customers won’t come.”

UK inflation is now rising at its slowest pace since July 2021.

They are also lower than in the eurozone and the United States, where interest rates in May were 2.6% and 3.3% respectively.

However, the UK is not out of the woods yet, as price increases in the services sector remain high.

James Smith, research director at the Resolution Foundation, which campaigns to improve living standards for low- to middle-income families, said many people “are still struggling with the high cost of basics”.

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