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Inflation hits 2% target for first time in three years as election nears

INFLATION has finally returned to the 2% target, a milestone not seen for almost three years, arriving just weeks before the nation heads to the polls.

According to the Office for National Statistics (ONS), Consumer Prices Index (CPI) inflation fell to 2% in May, down from 2.3% in April. This marks the first time inflation has hit the target since July 2021, before soaring during the cost-of-living crisis.

While prices are still rising, the rate of increase has significantly slowed compared to the past few years when households and businesses were severely impacted.

These latest figures will be closely scrutinised ahead of the Bank of England’s next interest rate decision on Thursday. However, policymakers are widely expected to hold off on any rate cuts until after the General Election on July 4.

The drop in inflation comes at a pivotal time, less than three weeks before polling day, as political parties sharpen their economic pledges.

Political Reactions

Rishi Sunak’s Conservatives are likely to tout the fall in inflation as proof that their economic strategy is working. However, shadow chancellor Rachel Reeves commented: “After 14 years of economic chaos under the Conservatives, working people are worse off. Prices have risen in the shops, mortgage bills are higher, and taxes are at a 70-year high.”

Liberal Democrat Treasury spokeswoman Sarah Olney added: “The hard truth is that millions of people won’t be feeling any better off today.”

Despite this positive development, experts warn that there is still considerable work needed to further reduce prices throughout the economy. The Bank of England is particularly concerned about inflation in the services sector, which, despite falling from 5.9% to 5.7% in May, remains stubbornly high. This has contributed to the Bank’s decision to maintain interest rates at their 16-year high of 5.25%.

Jake Finney, an economist at PwC, cautioned that it is “not ‘job done’ yet”. He noted: “If prices continue to rise at the same month-on-month rate as they did this month (0.3%), then headline inflation will be back over the 2% target next month (at 2.1%).”

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Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), remarked: “Despite this landmark fall in inflation, concerns over both underlying price pressures and changing policy in the run-up to a General Election mean a June interest rate cut is almost certainly off the table.”

The ONS reported that food inflation fell back to 1.6% – the lowest since October 2021 – significantly contributing to the reduction in overall CPI inflation. Food inflation had reached nearly 20% – 19.6% – in March last year but has been steadily decreasing since then.

However, last month saw price increases at petrol pumps and higher air fares, according to the ONS. The average price of petrol rose by 0.7p per litre between April and May, standing at 148.8p per litre.