UK inflation slows to central bank's 2% target

LONDON: Britain’s annual inflation rate slowed in May to the central bank’s two-percent target, official data showed Wednesday, boosting Prime Minister Rishi Sunak’s struggling election campaign.

The Consumer Prices Index slowed as expected from 2.3 percent in April, the Office for National Statistics said in a statement citing easing food prices.

That follows almost three years Britain’s above-target inflation, which last stood at two percent in July 2021 before surging higher in a cost-of-living crisis.

The news sets the scene for next month’s general election which Sunak’s Conservatives are tipped to lose badly to Keir Starmer’s main opposition Labour Party, according to opinion polls.

After peaking at 11.1 percent in October 2022, consumer price growth has cooled following a series of interest-rate hikes by the UK central bank.

Yet prices are still rising on top of the sharp increases seen in recent years but at a slower rate, as businesses and households weather the easing cost-of-living crunch.

Wednesday’s news comes on the eve of the BoE’s latest interest-rate decision but it is expected to sit tight, as is customary ahead of UK elections. Britons vote for a new government on July 4.

The central bank began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after Moscow invaded Ukraine.

The BoE last month held its main interest rate at a 16-year high of 5.25 percent but had hinted at a summer reduction as UK inflation cools further.

Economists expect it to maintain the status quo this week.

“The BoE will be encouraged by the slowdown in headline inflation, and while concerns will remain over elevated underlying price pressures, further falls in services inflation are anticipated over the coming months,” said KPMG UK chief economist Yael Selfin.

“Today’s data are unlikely to spur a surprise rate cut tomorrow, however, the (bank) could have sufficient evidence to begin its easing cycle in August.”