UK inflation has fallen to 2% in the year to May according to official figures, down from 2.3% the previous month.
The latest results mean that prices are rising at their lowest rate since July 2021, and inflation has reached the target set by the Bank of England. It also comes ahead of the BoE’s decision on UK interest rates this Thursday (20/6), with the feeling amongst some experts that the bank will hold the rate at 5.25% for a seventh consecutive time.
The drop in inflation is a result of price rises slowing for food and soft drinks, furniture, household goods and recreation and culture.
Here’s how the slowing inflation rate has been received by the housebuilding industry:
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “UK inflation eased to 2% in the 12 months to May, hitting the Bank of England’s target for the first time in almost three years and delivering respite to household budgets still reeling from the dizzying price rises seen at the height of the cost-of-living crisis.”
“Hitting the 2% inflation milestone will be a major moment for the BoE after a long, drawn-out battle to bring rampant inflation down from the double-digit levels seen just over a year ago. While the news will be comforting for households, it is unlikely to result in an immediate rate cut tomorrow as services inflation remains stubbornly high at 5.7% and core inflation, which strips out the more volatile items such as food, alcohol and tobacco, has eased but continues to sit above the 3% mark.”
“This won’t bode as well as hoped for Prime Minister Rishi Sunak’s bid to secure victory at the General Election next month. The Tories had been hoping to capitalise on a round of positive economic data to prop up their chances of a win in the run-up to the vote on July 4, but flat economic growth in April dented the recovery tale and the potential absence of a rate cut in June will deliver another blow to the Tory story that the economy has ‘turned a corner’.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “May’s inflation drop, in other circumstances, may have prompted some positive movements in the mortgage market. But, with rate cuts largely priced in, the Fed dragging its heels and a General Election in a matter of days, the Bank of England will be reluctant to make any waves.”
“This doesn’t mean it’s a time to sit still for those aiming to get on the property ladder or with mortgage deals due to expire. Mortgage rates are unlikely to drop really significantly when the Bank of England does cut rates, so now is the time to get on the front foot, speak to a broker and get mortgage ready. There are competitive deals on the market to be taken advantage of.”
George Sweeney, investing expert at personal finance comparison site, finder.com, commented: “Today’s figures mark an enormous milestone for the UK economy, with inflation finally reaching the Bank of England’s 2% target. This is the lowest that inflation has been since April 2021, and this will be a crucial element for the Bank of England’s (BoE) next decision on whether to finally make the first cut to the base rate since March 2020.”
“These figures should offer a glimmer of hope to mortgage holders whose household budgets have been squeezed over the last couple of years by crippling borrowing rates, as indicators continue to point towards an incoming base rate cut. However, if the BoE does decide to bring the base rate down in the August meeting, I don’t think it’s likely to be by much. Particularly, because the BoE has predicted a possible inflation spike up to 2.5% later this year. And, with all the hard work getting to this point, the BoE will be cautious about triggering further inflationary spikes if they appear to be overzealous.”
