UK Inflation Eases to 2% – Interest Rate Cut Possible Within Months

UK Inflation Eases to 2% – Interest Rate Cut on the Horizon

In a significant development, the UK inflation rate has eased to 2%, raising the possibility of an interest rate cut in the coming months. The consumer prices index (CPI) rate for the year to May was confirmed by the Office for National Statistics (ONS) on Wednesday, indicating that prices are still on the rise but at the slowest pace since July 2021.

The drop in inflation was primarily attributed to falling food prices, while the cost of motor fuel saw a slight increase. Core inflation, which excludes volatile elements such as food and energy, fell to 3.5% in May, in line with expectations.

However, concerns were raised about services inflation, which only decreased from 5.9% in April to 5.7% in May, indicating that certain sectors like hospitality were still experiencing significant price increases.

The Bank of England has been steadily increasing interest rates since December 2021 to combat high inflation levels, which peaked at 11.1% in October 2022 – the highest since 1981. The latest figures come ahead of the Bank’s decision on interest rates on Thursday, with most analysts expecting rates to remain at 5.25% for the seventh consecutive time.

Despite the likelihood of rates being held this week, the recent inflation figures make an interest rate cut in August more probable, according to commentators. In April, inflation had eased to 2.3%, but the decrease was not as substantial as anticipated.

The Confederation of British Industry’s principal economist Martin Sartorius suggested that the stage was set for an August rate cut, while Unite’s general secretary Sharon Graham called for immediate action to alleviate the cost of living crisis.

Political reactions to the inflation fall varied, with Prime Minister Rishi Sunak hailing it as a sign of progress under the Conservative government, while Labour’s shadow chancellor Rachel Reeves criticized the economic situation for working people. Liberal Democrat Treasury spokeswoman Sarah Olney emphasized that many individuals were still struggling financially despite the decrease in inflation.

The Bank of England’s decision on interest rates this week and the upcoming general election next month will likely shape the economic landscape in the UK for the foreseeable future. Stay tuned for further updates on this evolving story.