UK inflation hits target for first time in almost three years

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”.

The drop in May’s inflation figure was driven by a slight fall in prices for food and soft drinks, and slower price rises for recreation and culture and furniture and household goods.

However, petrol prices are rising again, and food prices are still 25% higher than at the beginning of 2022.

The inflation figure comes ahead of the Bank of England’s latest 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.

Inflation has fallen steadily since October 2022, when Russia’s invasion of Ukraine caused it to peak at 11.1% as food and fuel prices soared.

But 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 rates and rents.

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.”

May’s inflation figure is the last big official economic statistic before the general election and has 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 said the UK’s inflation rate was now lower than “nearly all” major economies.

“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 millions of people wouldn’t be feeling any better off.

“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.”

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 were 2.6% and 3.3% in May respectively.

However, the UK is not out of the woods yet, with price rises in the services sector still high.

Yael Selfin, chief economist at KPMG UK, said the Bank of England was unlikely to cut interest rates on Thursday but could do in August.

David Bharier, head of research at lobby group the British Chambers of Commerce, said May’s inflation figure provided “additional weight for an interest rate cut in the coming months”.