UK inflation drops to 2%

Business

UK inflation has eased to 2% – increasing the prospect of an interest rate cut this summer.

The consumer prices index (CPI) 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 spring 2021.

It comes following a sustained period of high inflation in the UK, which peaked at 11.1% in October 2022 – the highest level since 1981.

The fall in inflation comes ahead of the Bank of England‘s latest decision on interest rates on Thursday.

The Bank has been steadily increasing rates since December 2021 as part of efforts to bring down inflation – which soared in the wake of the COVID pandemic and amid the war in Ukraine to its target of 2%.

Most analysts expect rates to be held at 5.25% for the seventh time in a row this week, amid concerns that inflation could tick up again during the second half of the year.

However, today’s inflation figure does make it more likely that a cut will be made in August, commentators say.

Inflation eased to 2.3% in April, although the fall was not as big as economists and the Bank of England had forecast.

The prospects of a rate cut this week were dealt a blow last month when wage growth – a driver of inflation – came in higher than expected.

The ONS reported that regular wage growth, excluding the effects of bonuses, was 6% higher over the three months to March compared with a year earlier – the same level as in April.

Today’s inflation figures and Thursday’s interest rate decision are likely to be the final major economic announcements to be made before the general election next month.

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