UK Inflation Hits 2% Goal

Facts

• UK inflation sat at 2.0% in May, the Office for National Statistics reported Wednesday, reaching the Bank of England’s (BoE) target of 2% for the first time since July 2021.¹
• Price decreases for food and soft drinks, along with slower rises for recreation, furniture, and household goods, drove May's lower inflation, which was down from 2.3% in April. Nonetheless, food prices remain 25% higher compared to early 2022.²
• Core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, rose at an annual rate of 3.5% in May, down from 3.9% in April.³
• May’s inflation is unlikely to spur interest rate cuts when the BoE meets on Thursday, as crucial prices for services (5.7%) rose at a higher-than-expected rate. Forecasters project that the BoE’s next rate cut won’t happen until at least August.⁴
• The central bank has held rates at 5.25% since last August, when inflation was 7.9%. The bank is expected to monitor the impact phasing out of energy price caps will have on prices in the second half of the year, according to analysts who spoke with CNBC.³

Sources: ¹Reuters, ²BBC News, ³CNBC and ⁴Ft.

Narratives

• Right narrative, as provided by Daily Mail. Prime Minister Rishi Sunak and the Tories have implemented an economic policy that is ending the UK’s cost-of-living problems far sooner than expected, and working people can’t afford to hand control over to Labour. By reaching the BoE’s target of 2%, interest rate cuts are on the horizon as the UK economy finally turns the corner.
• Left narrative, as provided by Guardian. Sunak and the Tories may try to claim credit for a positive inflation report that was driven by the BoE, but it's too little and far too late for it to have any impact on July’s election. The BoE almost certainly won’t cut interest rates on Thursday, and voters will remember Sunak’s tenure for the double-digit inflation of 2022.

Predictions