Official data released on Wednesday showed that Britain’s annual inflation rate in May had slowed to the central bank’s two-percent target, providing a much-needed boost to Prime Minister Rishi Sunak’s election campaign.
The Consumer Prices Index, which had been at 2.3 percent in April, eased as expected, with the Office for National Statistics attributing the slowdown to lower food prices.
This marked a significant change after nearly three years of above-target inflation, hitting two percent in July 2021 before climbing higher amidst a cost-of-living crisis.
The recent data sets the stage for the upcoming general election, where Sunak’s Conservatives are predicted to face a tough challenge from Keir Starmer’s Labour Party.
Following a peak of 11.1 percent in October 2022, consumer price growth has since moderated due to a series of interest rate hikes by the UK central bank. While prices continue to rise, the rate of increase has slowed down, providing some relief to businesses and households grappling with the impact of rising living costs.
The Bank of England is scheduled to announce its latest interest rate decision soon, with expectations that it will maintain the current rate ahead of the election. The central bank had initiated a series of rate hikes in late 2021 to combat inflation, which had surged after the easing of Covid restrictions and was further exacerbated by the Ukraine conflict.
While the BoE kept its main interest rate at 5.25 percent last month, there have been suggestions of a potential reduction later in the summer as UK inflation cools further. Despite concerns about lingering price pressures, economists anticipate that the central bank will hold off on making any changes this week, waiting for more data before potentially starting an easing cycle in August.
KPMG UK chief economist Yael Selfin commented, “The BoE will be encouraged by the slowdown in headline inflation… Further falls in services inflation are anticipated over the coming months. Today’s data are unlikely to spur a surprise rate cut tomorrow, however, the (bank) could have sufficient evidence to begin its easing cycle in August.”
