In advance of the upcoming general election, the UK has seen consumer price inflation drop to the target rate of 2 percent for the first time in nearly three years.
According to data released by the Office for National Statistics (ONS) on Wednesday, consumer price inflation moderated to 2.0 percent in May, meeting market expectations, down from 2.3 percent in April. This marks the first instance of hitting the inflation target since July 2021.
On a month-to-month basis, consumer prices increased by 0.3 percent in May, the same growth rate observed in April. Analysts had anticipated a slightly higher monthly increase of 0.4 percent.
When excluding volatile components such as energy, food, alcohol, and tobacco, core inflation slowed to 3.5 percent from 3.9 percent, aligning with forecasts.
Despite the overall deceleration, services inflation remained elevated at 5.7 percent, only a slight reduction from 5.9 percent in April. Conversely, the prices of goods registered an annual decline of 1.3 percent.
Ruth Gregory, an economist with Capital Economics, noted that although inflation fell to 2.0 percent in May, it is unlikely to prompt the Bank of England (BoE) to lower interest rates from their current level of 5.25 percent during the upcoming monetary policy meeting.
The BoE has maintained the interest rate at 5.25 percent over the past six consecutive meetings, which is the highest rate since early 2008.
Additional data from the ONS indicated that factory gate prices, or output prices, increased by 1.7 percent year-on-year in May, up from a 1.1 percent rise in April.
Contrary to expectations, monthly output prices experienced a decrease of 0.1 percent in May, following a revised monthly rise of 0.3 percent in April. Economists had predicted a 0.1 percent increase for May.
Simultaneously, input prices showed a minor annual decline of 0.1 percent in May, compared to a revised drop of 1.4 percent in April. On a monthly basis, input prices remained stable from April to May, after a revised increase of 0.8 percent in April, according to the ONS.
The ONS highlighted that the annual inflation rates for both input and output producer price indices (PPI) are at their highest levels since May 2023.
