Image source, Getty Images
- Author, Tom Espiner
- Role, BBC business reporter
-
Inflation has hit the Bank of England’s target for the first time in almost three years.
Prices rose at 2% in the year to May, down from 2.3% the month before, official figures show.
The economy is a key talking point in the run-up to the general election on 4 July, with all of the main parties battling over how they would keep the cost of living under control.
The Conservatives said their “difficult decisions” were paying off, but Labour said pressures on family finances were “still acute”.
It comes ahead of a Bank of England decision on UK interest rates this Thursday.
The bank is expected to hold the rate at 5.25% – a 16-year high – for the seventh meeting in a row. Markets are not betting on a cut until August.
The drop in May’s inflation figure was driven by slower price rises for food and soft drinks, recreation and culture, and furniture and household goods.
However, petrol prices are on the way up again and food prices are still 25% higher than at the beginning of 2022.
Inflation peaked at 11.1% in October 2022 as Russia’s invasion of Ukraine caused food and fuel prices to soar, but it has fallen steadily since then.
Yet millions of households are still struggling with the cost of living.
Even though inflation is falling, it does not mean the prices of goods and services overall are coming down, just that they are rising at a slower pace.
The Bank of England has also put up interest rates to try to dampen down consumer demand, driving up mortgage costs for homeowners in the process.
‘Pressures on family finances are still acute’
May’s figures are the last big official economic statistics before the general election campaign and have sparked significant debate among the main parties.
The Conservatives claim the figures back up their story of an economic turnaround – although the question for them politically is whether they get any credit for the fall.
Chancellor Jeremy Hunt told reporters the UK economy had seen a “soft landing with inflation that was higher than nearly any other major economy now lower than nearly all our major competitors.
“That would not have happened under Labour that refused to condemn the public sector pay strikes, that would have meant inflationary pay rises, inflation lasting longer,” he added.
But Labour continue to press concerns about an ongoing cost of living crisis.
Rachel Reeves, Labour’s shadow chancellor, said: “Unlike Conservative ministers, I’m not going to claim that everything is all fine, that the cost of living crisis is over, because I know that pressures on family finances are still acute”.
Liberal Democrat Treasury spokeswoman Sarah Olney said: “The hard truth is that millions of people won’t be feeling any better off today, thanks to years of Conservative economic mismanagement.
“Rishi Sunak’s boasts will ring hollow to countless families seeing their mortgages skyrocket and agonising rises in shopping prices compared to just a few years ago.”
‘You can’t pass all costs on to customers’
Gary Wildman, the owner of John Wildman & Sons butchers, told the BBC he had seen price rises levelling out at the store he started with his dad 31 years ago in Rustington, West Sussex.
“Prices are probably 10 to 15% more than they were at the beginning of Covid, but they are level now, definitely,” he told the BBC.
However, he said some products such as pork were still going up while the shop’s energy bills were higher than a few years ago.
“You do take a hit to your margins,” he said. “You can’t pass all costs on to customers or the customers wouldn’t come in.”
UK inflation is now rising at its slowest pace since July 2021.
It is also lower than in the eurozone and the US, where rates in May were 2.6% and 3.3% respectively.
However, the UK is not out of the woods yet, with price rises in the services sector still high.
Many people “continue to struggle with the higher cost of essentials”, said James Smith, research director at the Resolution Foundation think tank, which campaigns for better living standards for low-to-middle income families.
“And while headline inflation is back to normal levels, domestically-driven services-price inflation remains elevated. This inflation will worry the Bank of England, and may give pause for thought when it comes to cutting interest rates.”
#inflation #hits #target #time #years,
#inflation #hits #target #time #years