Inflation has hit the Bank of England's (BoE) target for the first time in nearly three years. Official figures show that prices rose by 2% in the year to May, down from 2.3% the previous month.
Election economy concerns
The economy is a central issue in the lead-up to the general election on 4 July, with major parties vying over how to control the cost of living. The decrease in May's inflation was mainly due to slight drops in food and soft drink prices, and slower price increases for recreation, culture, and household goods.
Prices for bread, cereals, vegetables, sugar, jam, and chocolate fell between April and May this year compared to last year.
However, food prices remain 25% higher than at the beginning of 2022.
Petrol prices rose by 0.7p per litre between April and May, while diesel prices fell by 0.8p per litre. This inflation figure precedes the BoE's upcoming decision on UK interest rates this Thursday.
The Bank is expected to keep the rate at 5.25%-a 16-year high-for the seventh consecutive meeting.
Market expectations for a rate cut in August have also diminished, as price rises in the services sector remain high at 5.7% over the 12 months to May. Inflation has steadily declined since October 2022, when it peaked at 11.1% due to soaring food and fuel prices following Russia's invasion of Ukraine.
Impact on households and housing
Despite falling inflation, many households still struggle with the cost of living.
A lower inflation rate does not mean overall prices are decreasing, just that they are increasing slower.
The BoE has raised interest rates to curb consumer demand, affecting mortgage rates and rents. Recent figures on renting show that average rents paid to private landlords in the UK rose by 8.7% in the year to June.
Despite falling inflation, mortgage rates remain high as lenders await the BoE's next interest rate decision. May's inflation figure was the last significant economic statistic before the general election, prompting considerable debate among the main parties.The decline in inflation is largely attributed to falling wholesale energy and food prices, along with 14 rate hikes by the BoE.
UK inflation is now rising at its slowest rate since July 2021. It is also lower than in the eurozone and the US, where rates were 2.6% and 3.3% in May, respectively.
Chancellor Jeremy Hunt said the UK's inflation rate was now lower than "nearly all" major economies.
Rachel Reeves, Labour's shadow chancellor said:
"I know that the cost of living crisis is still acute, that even though inflation is falling, it doesn't mean the prices are coming down, they're just rising at a less fast rate."
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