UK inflation has eased to 2%, raising the prospect of a rate cut within months.
The consumer price index (CPI) The interest rate for the year to May was confirmed by the Office for National Statistics (ONS) on Wednesday.
The figure indicates that prices are still rising, but at the slowest pace since July 2021.
The ONS said the fall was largely due to falling food prices, while the cost of motor fuel rose slightly.
Officials added that core inflation, which excludes volatile items such as food and energy, fell to 3.5% in May, in line with expectations.
However, some commentators expressed concern that inflation in the services sector – which includes sectors such as hospitality – had only fallen from 5.9% in April to 5.7% in May.
The latest figures come after a sustained period of high inflation in Britain peaked at 11.1% in October 2022 – the highest level since 1981.
It also comes before the bank of England‘s latest decision on interest rates on Thursday.
The Bank has been steadily raising interest rates since December 2021 as part of its efforts to curb inflation – which skyrocketed in the wake of the crisis. Covid pandemic and in the midst of war in Ukraine – to the 2% target.
Most analysts expect interest rates to remain the same held at 5.25% for the seventh time in a row this week, amid concerns that inflation could rise again in the second half of the year.
However, current inflation rates make it more likely that a cut will occur in August, commentators say.
Inflation fell to 2.3% in Aprilalthough the decline was not as large as economists and the Bank of England had predicted.
The prospects for a rate cut this week took a hit last month when wage growth – a driving force behind inflation – came out higher than expected.
Today’s inflation figures and Thursday’s interest rate decision will likely be the last major economic announcements made before the election general election next month.
‘Phase ready’ for interest rate reduction
The Confederation of British Industry’s chief economist Martin Sartorius said the fall in inflation would be “welcome news for households”, although he said many were still feeling the pressure.
He added: “Today’s data provides the basis for the [Bank’s] The Monetary Policy Committee will cut rates in August, in line with expectations from our latest forecast.
However, taxmakers will still need to weigh the decline in headline inflation against signals that domestic price pressures, such as higher wage growth, are easing more slowly.
“This means they are likely to proceed cautiously beyond August to avoid further upward pressure on inflation, especially as growth prospects improve at home and geopolitical tensions remain high.”
Concerns about inflation in the services sector
Ruth Gregory of research firm Capital Economics said Wednesday’s figures “probably won’t be enough” to convince the Bank to cut rates on Thursday.
She added: “And with inflation in the services sector having fallen only slightly, our forecast that the Bank will cut rates for the first time in August is looking a little shakier.”
Rob Wood of Pantheon Macroeconomics agreed there was a risk the Bank’s first rate cut of the year would now be delayed until September.
He said: “The bad news is that inflation in the services sector has proven remarkably persistent, only falling from 6.1% in February to 5.7% in May, a period when large base effects should have weighed heavily on inflation in annual basis.
“We will have to look carefully at all the detailed data.”
In the meantime, UniteGeneral secretary Sharon Graham called on the Bank to cut interest rates more quickly.
She said: “Falling inflation does not mean falling prices. The worst cost of living it still drags on for generations.
‘We need action from the Bank of England on Thursday to cut interest rates and ease the pressure on struggling homeowners.’
Parties clash over figures
Rishi Sunak described the fall in inflation as ‘great news’ in a video on social media.
He said: “When I became Prime Minister, inflation was 11%. But we took bold action. We stuck to a clear plan and that is why the economy has now turned around.
“So let’s not risk all that progress with Labour.”
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‘Cost of living crisis not over yet’
Labour’s shadow chancellor Rachel Reeves said: ‘After fourteen years of economic chaos under the Conservatives, working people are worse off.
“Prices in stores have risen, mortgage costs are higher and taxes are at their highest level in 70 years.”
Liberal Democrat Treasury spokeswoman Sarah Olney said: “The hard truth is that millions of people will not feel better off today.”
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