image source, Good pictures
- author, Tom Espiner
- stock, BBC Business Correspondent
-
Inflation has hit the Bank of England's target for the first time in almost three years.
Prices rose 2% in the year to May, down 2.3% from the previous month, official figures showed.
With a general election on July 4, the economy is a key talking point as all major parties grapple with how to keep the cost of living under control.
The Conservatives said their « tough decisions » were paying off, but Labor said the pressures on family finances were « even more severe ».
This comes ahead of the Bank of England's decision on UK interest rates this Thursday.
The bank is expected to hold rates at 5.25% for the seventh consecutive meeting – a 16-year high. Markets aren't betting on a cut until August.
The decline in May's inflation numbers was due to slower price increases in food and beverages, entertainment and culture, and furniture and household goods.
However, gasoline prices are rising again, and food prices are still 25% higher than they were in early 2022.
Inflation rose to 11.1% in October 2022 as Russia's invasion of Ukraine pushed up food and fuel prices, but has since eased.
Millions more families are still struggling with the cost of living.
Although inflation is falling, it does not mean that overall prices of goods and services are falling, they are rising at a slower pace.
The Bank of England has also held interest rates to dampen consumer demand, raising mortgage costs for homeowners in the process.
'Pressures on family finances remain severe'
May's figures are the last major official economic figures before the general election campaign and have sparked significant debate among the main parties.
Conservatives say the figures support their story of an economic turnaround – the question for them politically is whether they get any credit for the downturn.
Chancellor Jeremy Hunt told reporters that the UK economy had « seen a soft landing with inflation, which is higher than almost every other major economy, now lower than our main competitors.
« That would not have happened under a Labor government that refused to condemn public sector pay strikes, meaning inflationary wage increases, inflation would last longer, » he added.
But Labor continues to press concerns about the cost of living crisis.
Labour's shadow chancellor Rachel Reeves said: « Unlike Conservative ministers, I'm not going to say all is well and the cost of living crisis is over because I know the pressures on family finances are still severe ».
Liberal Democrat Treasury spokeswoman Sarah Olney said: « Thanks to years of Conservative economic mismanagement, the hard truth is that millions of people will not feel better today.
« Rishi Sunak's bragging rights have seen countless families see their mortgages soar and shopping prices agonizingly higher than they were a few years ago. »
'Not all costs can be passed on to customers'
Gary Wildman, owner of John Wildman & Sons butchers, told the BBC he had seen prices rise at the shop he started with his dad 31 years ago in Rustington, West Sussex.
« Prices are probably 10 to 15% higher than they were at the start of Covid, but they are at the level now, for sure, » he told the BBC.
However, he said some products, such as pork, are still rising, while the store's energy bill is higher than it was a few years ago.
« You win at your margins, » he said. « You can't pass all costs on to customers or customers won't come. »
UK inflation is now rising at its slowest pace since July 2021.
It is also lower than in the Eurozone and the US, where rates were 2.6% and 3.3% respectively in May.
However, the UK is not out of the woods yet, with price rises still high in the services sector.
Many « continue to struggle with the high cost of essentials », said James Smith, director of research at the Resolution Foundation think tank, which campaigns for better living standards for low- to middle-income families.
“And while headline inflation has returned to normal, domestically driven services-price inflation remains high. This inflation will worry the Bank of England, and may give pause for thought when it comes to cutting interest rates.
