In May 2024, British inflation achieved the Bank of England’s target of 2%, marking a significant decrease from April’s 2.3% and a sharp decline from its peak at 11.1% in October 2022, according to a statement from the Office of National Statistics (ONS).
The Consumer Prices Index (CPI), a key measure of inflation, rose by 2% over the preceding 12 months, driven primarily by decreases in prices of food and non-alcoholic beverages, recreation and culture, as well as furniture and household goods. These reductions were partially offset by increases in transportation costs, as noted by the ONS.
Prime Minister Rishi Sunak welcomed the news, describing the drop in inflation as a positive development for UK families. He emphasized that reducing inflation had been a top priority and suggested that the return to normal levels was beneficial for households across the country.
However, Shadow Chancellor Rachel Reeves tempered the optimism, acknowledging that while the 2% inflation figure is an improvement, British households continue to face significant financial pressures. She pointed out that the cost of living crisis persists, cautioning against premature declarations that all economic challenges have been resolved.
Looking forward, senior economists like Azad Zangana from Schroders cautioned that inflationary pressures might resurface in the latter half of 2024. Zangana highlighted concerns raised by the Bank of England, suggesting that despite the current decline, there could be renewed upward pressure on inflation in the coming quarters.
Despite expectations from financial markets for interest rate cuts later in the year, the Bank of England is anticipated to maintain its benchmark interest rate at 5.25% during its upcoming meeting. The central bank’s Monetary Policy Committee has projected a potential uptick in inflation towards 3% later in 2024, with an anticipated return to 2% in the following year.
In summary, while achieving the 2% inflation target represents a milestone for British economic policy, ongoing challenges in the cost of living underscore the complex dynamics of inflation management and economic resilience moving forward.