Inflation has hit the Bank of England’s 2% target for the first time in nearly three years, as prices rose at this rate in the year to May, down from 2.3% in April, according to official figures.
This economic shift is a hot topic ahead of the general election on July 4, with parties vying to showcase their plans to manage living costs.
The Conservatives claim their tough decisions are paying off, while Labour emphasizes that family financial pressures remain intense.
The decline in May’s inflation was primarily due to slight drops in food and soft drink prices, along with slower price increases in recreation, culture, furniture, and household goods.
However, petrol prices are climbing again, and food prices are still 25% higher than at the start of 2022.
The inflation figure precedes the Bank of England’s decision on UK interest rates this Thursday. The bank is expected to maintain the rate at 5.25%, a 16-year high, for the seventh consecutive meeting. Markets are not anticipating a rate cut until August.
Inflation has been steadily falling since peaking at 11.1% in October 2022, driven by soaring food and fuel prices following Russia’s invasion of Ukraine.
Despite the decline, many households are still grappling with high living costs. Falling inflation doesn’t mean prices are dropping, just that their increase is slowing.
The Bank of England has also raised interest rates to curb consumer demand, impacting mortgage rates and rents.
Official figures released Wednesday show average rents paid to private landlords in the UK increased by 8.7% in the year to June.
Even with falling inflation, mortgage rates remain high as lenders await the Bank of England’s next moves on interest rates.
Balancing Costs and Customers
Gary Wildman, owner of John Wildman & Sons butchers, has seen price rises leveling off at his store 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 said.
However, some products like pork are still increasing, and the shop’s energy bills are higher than a few years ago. “You can’t pass all business costs on to customers or the customers wouldn’t come in,” he added.
Political Showdown Over Cost of Living
May’s inflation figure is the last major economic statistic before the general election, sparking debates among the main parties. The Conservatives argue the figures support their narrative of economic recovery. Chancellor Jeremy Hunt noted the UK’s inflation rate is now lower than most major economies.
Labour, however, continues to stress the ongoing cost of living crisis. Shadow Chancellor Rachel Reeves remarked, “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 pointed out that many people still feel financially strained. “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.” she said.
UK inflation is now rising at its slowest pace since July 2021, lower than in the eurozone and the US. Yet, the UK isn’t out of the woods, with significant price rises in the services sector still looming.
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