July 18, 2024

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UK inflation hits Bank of England’s 2% target in May

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Inflation has hit the UK’s 2 per cent target for the first time in three years, delivering a fillip to Prime Minister Rishi Sunak as he seeks to turn around his struggling election campaign.

The figure means consumer prices inflation has dropped to 2 per cent ahead of the US and Eurozone, in a milestone following the worst inflationary upsurge in a generation. The Bank of England last hit its 2 per cent inflation target in July 2021.

The Office for National Statistics figure for CPI growth in May was in line with a forecast of economists polled by Reuters and down from April’s rate of 2.3 per cent, driven lower by food and non-alcoholic beverages, recreation and furniture prices.

However, the latest reading showed a smaller retreat in services inflation than economists had forecast. It dropped to 5.7 per cent in May, compared with 5.9 per cent previously. Core inflation, which strips out food and energy, fell to 3.5 per cent in May 2024, down from 3.9 per cent in April but still at an elevated level.

Sterling rose 0.15 per cent to $1.2725 after the announcement.

“Headline inflation is at target, but the war on inflation isn’t won yet,” said Tomasz Wieladek, an economist at T Rowe Price. “The strong level of services inflation this morning suggests that inflation is not yet coming down in a sustainable fashion.”

Sunak, who called Britain’s July 4 election the day the April figures were published, hailed the figures on LBC radio as “very good news, because the last two years have been really tough for everybody”. But his Conservative party remains about 20 points behind the opposition Labour party in the polls.

The BoE’s Monetary Policy Committee is due to set interest rates on Thursday, with analysts widely expecting it to keep the benchmark rate at its 16-year high of 5.25 per cent.

Investors on Wednesday lowered their bets on the first…

2024-06-19 03:50:34

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