Prices down

Inflation falls to Bank of England’s 2% target

supermarket food
Shop prices have fallen

Inflation has fallen to the Bank of England’s 2% target, providing some welcome news for businesses and household as well as the Prime Minister who will see it as an endorsement of his economic policy.

The fall from 2.3% in April was predicted and means it is the first time inflation has met the target since July 2021.

The easing in the inflation rate comes ahead of the Bank’s decision tomorrow on interest rates which it is expected to hold at 5.25%.

There was a slowdown in price rises for food and soft drinks, recreation and culture, and furniture and household goods.

Core inflation which excludes food, energy, alcohol and tobacco, as they tend to be volatile, is forecast to have fallen to 3.5% from 3.9%, also as expected.

Dan Coatsworth, investment analyst at AJ Bell, said: “Inflation hitting the Bank of England’s 2% target might not be the magic moment desired by investors. The pound jumped on the news, implying little chance of the Bank cutting rates at its meeting tomorrow. Few thought it would happen anyway, but today’s figures make it even less likely.

“The key negative point was services inflation coming in higher than expected and this data point really matters to the Bank, particularly as it had forecast a lower figure than what we got (5.3% forecast versus 5.7% actual).

“That shifts the focus to August as the date for the potential first cut from the Bank of England and a lot can happen between now and then, with a late summer easing in monetary policy certainly not a done deal.”

Kevin Brown, savings specialist at Scottish Friendly said: “This inflation reading is what was expected by markets ahead of the announcement and is a significant moment as the inflation surge of the past two years has finally receded.

“Although price rise levels are now back on target, rate setters will be cautious ahead of any cut as wage rises are now strongly ahead of price increases. Taking the foot off the rate pedal too soon could reignite a wage-price spiral so it is likely policymakers will continue to act with an abundance of caution.

“Families looking for relief from rising prices will start to feel the benefit of a normalising situation, but the damage inflation has done is yet to be truly cancelled out by wage increases.”

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