image Source, Getty Images
- Author, Tom Espiner
- Role, BBC Business Reporter
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Inflation has reached the Bank of England's target for the first time in nearly three years.
Prices rose 2% in the year ending May, following a 2.3% increase in the previous month, according to official data.
The economy is a major talking point ahead of the general election on July 4, as all the main parties wrestle with how to keep the cost of living under control.
The Conservatives said their “difficult decisions” were proving fruitful, but Labour said the pressure on families' finances was “still severe”.
The decision comes ahead of the Bank of England's decision on UK interest rates this Thursday.
The bank is expected to keep the interest rate at 5.25% for the seventh consecutive meeting – the highest level in 16 years. Markets are not expecting an interest rate cut until August.
The decline in May's inflation figures was due to slower growth in prices of food and soft drinks, entertainment and culture, and furniture and household goods.
However, petrol prices are set to rise again and food prices are still 25% higher than at the beginning of 2022.
Inflation hit an all-time high of 11.1% in October 2022 as food and fuel prices skyrocketed in the wake of Russia’s invasion of Ukraine, but has been falling steadily since then.
Yet millions of families still struggle with the cost of living.
Although inflation is decreasing, this does not mean that overall the prices of goods and services are decreasing, but rather that they are rising at a slower pace.
The Bank of England has also raised interest rates to spur consumer demand, raising mortgage costs for homeowners.
'The pressure on the family's finances is still severe'
May's figures are the last major official economic data before the general election campaign and have sparked significant debate between the main parties.
Conservatives claim the figures reinforce their narrative of economic turnaround – though the question for them politically is whether they will get any credit for the decline.
Chancellor Jeremy Hunt told reporters that Britain's economy had slowed, with inflation “higher than any other major economy, and now lower than almost all our major competitors.”
“This would not have happened under Labor, which refused to condemn pay strikes in the public sector. It would have meant wage inflation would have increased and inflation would have persisted for a long time,” he said.
But the Labour Party continues to raise concerns about the ongoing cost of living crisis.
Rachel Reeves, the Labour shadow chancellor, said: “Unlike Conservative ministers, I’m not going to pretend that everything is fine, that the cost of living crisis is over, because I know the pressure on families’ finances is still severe”.
Liberal Democrat Treasury spokeswoman Sarah Olney said: “The harsh truth is that millions of people are not feeling better today because of years of Conservative economic mismanagement.
“Rishi Sunak’s boast will ring hollow for countless families, with their mortgage debts seeing a huge increase compared to just a few years ago and the cost of purchases rising by a huge amount too.”
“You can't pass all the costs on to the customer”
Gary Wildman, owner of John Wildman & Sons Butchers, told the BBC he has seen price rises stabilise at the store he started with his father in Rustington, West Sussex, 31 years ago.
“Prices are probably 10 to 15% higher than they were at the start of Covid, but they're certainly at a similar level now,” he told the BBC.
However, he said prices for some products, such as pork, are still rising, while the store's energy bill is higher than it was a few years ago.
He said, “Your margins are affected. You cannot pass on all the expense to customers, otherwise customers will not come to you.”
Inflation in the UK is now rising at the slowest pace since July 2021.
It is also lower than the eurozone and the US, where rates were 2.6% and 3.3%, respectively, in May.
However, the UK is not yet out of the woods, and price rises in the services sector are still high.
Many people are “struggling with the rising costs of essential goods,” said James Smith, research director at the Resolution Foundation think tank, which campaigns for a better standard of living for low- to middle-income families.
“And while core inflation has returned to normal levels, household-driven service-price inflation remains high. This inflation will worry the Bank of England, and may give it pause for thought when it comes to cutting interest rates.”