Inflation fell to the 2 per cent target for the first time in nearly three years in a boost for Prime Minister Rishi Sunak’s faltering election campaign.
Office for National Statistics figures show the Consumer Price Index fell to 2 per cent in May, down from 2.3 per cent in April.
The new figure marks the first time inflation has reached the Bank of England’s target since July 2021, before the cost of living crisis sent inflation soaring – at one point reaching levels not seen for 40 years.
Service price inflation – which, according to the bank, gives a better picture of medium-term inflation risks – fell by 0.2 points to 5.7 percent, but did not fall to the 5.5 percent level that economists had expected.
While the pound rose against the US dollar on Wednesday morning, the British stock indexes FTSE100 and FTSE250 fell by 0.2 percent as investors suffered from a tepid decline in services price inflation.
But the return of the CPI to 2 per cent is likely to give the Conservatives a boost ahead of the election, with Sunak quick to declare victory over inflation already last month despite expectations it was expected to fall sharply as energy and food costs fall. .
However, most economists believe the Bank of England will keep interest rates at 5.25 per cent on Thursday, with very little hope of cutting them before the country heads to the polls on July 4.
While think tank Resolution said firmer services rates data would give the Bank of England “pause for thought”, the Confederation of British Industry (CBI) said the stage was now set for a cautious interest rate cut on Threadneedle Street in August.
Praising the move towards a “more moderate inflationary environment”, Martin Sartorius, chief economist at the CBI, said: “However, many will still feel distressed by the price level being much higher than in previous years, especially for food and energy bills.
“Today’s data sets the stage for the MPC to cut interest rates in August, in line with our latest forecast. However, rate setters will still need to balance the decline in headline inflation against signals that domestic price pressures, such as higher wage growth , proving to be slower in decline.
“This means they are likely to move cautiously after August to avoid putting further upward pressure on inflation, especially as the outlook for growth at home improves and geopolitical tensions persist.”
However, Robert Wood of Pantheon Macroeconomics said higher services inflation could mean the bank’s long-awaited interest rate cut is delayed until September.
Speaking as his party slipped in the polls, Minister Mel Stride claimed to Times Radio that the “hugely important” inflation news would allow the Tories to “beat tax”.
But he sidestepped questions about senior business leaders, including Phones4U billionaire John Caudwell, abandoning the Conservatives for Labour, stressing that inflation is “very good for business, it’s very good for growth, it’s good for people’s living standards”.
“A year and a half ago, the Bank of England predicted the longest recession in 100 years,” Chancellor Jeremy Hunt said. Instead, we have had a soft landing with an inflation rate that was higher than almost every other major economy and is now lower than almost all of our major competitors. This shows that the difficult decisions we made have paid off.”
However, the general secretary of the Trades Union Congress, Paul Nowak, warned that low inflation could not mask “the worst period for living standards in modern times”, with prices rising more rapidly in the past three years than is typical over a full decade.
Consumer prices have risen by about 20 percent in Britain over the past three years.
“Ministers can try to rewrite history all they like,” Nowak said, adding: “Food and energy bills have risen. Rents and mortgages have risen dramatically. Real wages are still lower than they were in 2008. Working people have paid the price for the failure of this policy.” government, with household debt also rising to record levels.
Suren Thero, of the Institute of Chartered Accountants, warned: “The path to inflation may become more difficult after the election, with rising national living wages and reduced labor supply likely to put upward pressure on prices, despite a further decline in energy bills.” “. July”.
“Despite this historic decline in inflation, concerns about underlying price pressures and policy changes in the run-up to the general election mean that a June rate cut is almost certainly not on the table,” he added.
Sunak said the “great news” was that inflation was now lower than in Germany, France and the US, claiming that “the economy has now turned a corner” due to his “bold actions” of “sticking to a clear policy”. He plans.” He warned voters not to “jeopardize all this progress with Labour.”
But Shadow Chancellor Rachel Reeves said: “After 14 years of economic chaos under the Conservatives, Labor is worse off,” adding: “Labour has a plan to make people better off, stabilize our economy, unlock investment and deliver reform.” “
Additional reporting by the Palestinian Authority