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UK inflation has hit its target for the first time in almost three years, as consumer price inflation eased to 2% in the year to May, down from a rise of 2.3% the prior month. The Bank of England last hit the 2% target in July 2021. According to the Office for National Statistics, the decline was largely thanks to falling food prices, with prices falling this year but rising a year ago.
The largest upward contribution came from motor fuels, however, with prices rising slightly this year but falling a year ago.
The prices of food and non-alcoholic beverages rose by only 1.7% in the year to May 2024, down from 2.9% in the year to April. This figure marks the lowest annual rate since October 2021, as the rate eased for the 14th consecutive month from a recent high of 19.2% in March 2023, the highest annual rate seen for over 45 years.
Elsewhere, the prices of furniture and household goods rose by 0.2% between April and May 2024, compared with a larger monthly rise of 1.1% a year ago. On an annual basis, these prices fell by 1.8% in the year to May, compared with a fall of 0.9% in the year to April. The annual rate in May 2024 was the lowest since December 2000.
Core inflation, which excludes energy, food, alcohol and tobacco, was also on the decline, rising by 3.5% in the 12 months to May 2024, down from 3.9% in April.
Commenting on the figures, Yael Selfin, chief economist at KPMG UK, said: “Inflation returns to target, but Bank of England is unlikely to fire starting gun on interest rate cuts tomorrow.
“The Bank of England will be encouraged by the slowdown in headline inflation, and while concerns will remain over elevated underlying price pressures, 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 MPC could have sufficient evidence to begin its easing cycle in August.”
She added: “While underlying price pressures have moderated somewhat, they remain uncomfortably high, with services inflation running at 5.7%. The Bank will need to see a continued fall in services inflation before it can be confident that headline inflation will stay sustainably at its 2% target in the medium term. A slower pace of pay rises may lead to weakening services inflation, helped by a loosening labour market.”
