Inflation Falls to Lowest Point in Nearly Three Years

Los Angeles/Jun 19, 2024
NRIpress.club/Ramesh/A.Gary Singh

Prices increased by 2% in the year leading up to May, a decline from 2.3% the previous month, according to official data. This development comes as the economy becomes a focal point ahead of the July 4 general election, with major political parties debating their strategies to control living costs.

The Conservatives credit their "difficult decisions" for the improvement, while Labour highlights ongoing financial pressures on families. The dip in May's inflation rate is attributed to reduced prices for food and soft drinks, along with slower price increases in recreation, culture, furniture, and household goods. However, rising petrol prices and food costs, which remain 25% higher than early 2022, continue to pose challenges.

This inflation report precedes the Bank of England's upcoming interest rate decision on Thursday, with expectations to maintain the rate at 5.25%, a 16-year high, for the seventh consecutive meeting. Market projections suggest a potential rate cut in August.

How Quickly Are Prices Rising in the UK?

Inflation has been steadily declining since its peak at 11.1% in October 2022, driven by food and fuel price surges following Russia's invasion of Ukraine. Despite this decline, many households are still grappling with high living costs. A lower inflation rate indicates slower price increases, not a reduction in overall prices. The Bank of England's interest rate hikes aim to curb consumer demand, impacting mortgage rates and rents. Official figures show an 8.7% rise in average rents for private landlords in the year to June.

Economic Pressures on Businesses and Households

Gary Wildman, owner of John Wildman & Sons butchers in Rustington, West Sussex, reported stabilizing prices in his store, which are now 10-15% higher than pre-Covid levels. However, some items like pork continue to rise, and the shop faces higher energy costs. "You can't pass all costs on to customers or the customers wouldn't come in," Wildman noted.

Political Debate Over the Cost of Living

May's inflation figures have ignited significant political debate ahead of the general election. The Conservatives argue the data supports their narrative of economic recovery, while Labour emphasizes the persistent cost of living crisis. Chancellor Jeremy Hunt pointed out that the UK's inflation rate is now lower than that of many major economies, a feat he claims would not have been possible under Labour.

Labour’s shadow chancellor, Rachel Reeves, acknowledged ongoing financial pressures on families, criticizing the Conservative ministers for downplaying the cost of living crisis. Similarly, Liberal Democrat Treasury spokeswoman Sarah Olney highlighted that many people still feel financially strained, despite the declining inflation rate.

Outlook on Inflation and Interest Rates

With UK inflation now rising at its slowest rate since July 2021, and lower than the eurozone and US rates of 2.6% and 3.3% respectively, there is cautious optimism. However, high price increases in the services sector remain a concern. Yael Selfin, chief economist at KPMG UK, noted the need for a continued fall in services inflation before considering rate cuts. David Bharier from the British Chambers of Commerce suggested that May's inflation data supports a potential interest rate reduction in the coming months.

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