UK consumer price inflation in May at 2%

19 Jun 2024 , 01:20 PM

Inflation in the United Kingdom has returned to the Bank of England’s goal rate of 2% for the first time in over three years, according to official numbers released Wednesday.

According to the Office for National Statistics, inflation, as measured by the consumer price index, decreased to 2% in the year to May from 2.3% the previous month, with food prices contributing the most to the decline.

Though the decline simply means that prices are rising at a slower rate than they have in recent years during a cost-of-living crisis, Conservative Prime Minister Rishi Sunak sought to take credit for the fall, claiming it was further evidence that the “economy has now turned a corner.”

However, Rachel Reeves, who would become Treasury chief if the main opposition Labour Party wins the election, stated that working people are “worse off,” with mortgage rates higher than they have been in years and taxes at a 70-year high.

The decline in inflation comes after nearly three years of above-target inflation. The last time inflation was at 2% was in July 2021, before prices began to rise, first due to supply chain concerns during the coronavirus outbreak, and then due to Russia’s invasion of Ukraine, which increased energy expenses.

Despite the reduction, few experts expect the Bank of England to lower its main interest rate from 5.25% on Thursday. Some policymakers remain concerned about the magnitude of price increases in the critical services sector and the rate of wage increases, which raises the risk of an inflation return if interest rates are cut too fast. Financial markets anticipate a rate drop in August.

Despite the bank’s independence from the government, there is a common expectation that officials will hold the line throughout an election campaign.

The Bank of England, like the US Federal Reserve and other central banks, aggressively hiked interest rates in late 2021 from near zero to battle the rapid rise in inflation, which reached a peak of more than 11%.

Higher interest rates, which cool the economy by making borrowing more expensive, have helped reduce inflation, but they have also dragged on the British economy, which has hardly risen since the pandemic’s recovery.

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