Inflation Falls To 2%, But Interest Rates Likely To Remain Unchanged

The Office for National Statistics (ONS) have confirmed that inflation (as measured by the Consumer Prices Index (CPI)) fell from 2.3% to 2% in May. This represents the first time since July 2021 that inflation was within the Government's official target of 2% (when it was likewise at exactly 2%). Nevertheless, as the Resolution Foundation point out, since July 2021 "overall prices have risen by 22 per cent....[whilst] energy prices have risen by 66 per cent and food by 31 per cent. This has put Britain’s poorest families under significant strain, as they spend a greater proportion of their income on essentials compared to richer households." Furthermore, the fall in inflation back to 2% is unlikely to lead to a fall in interest later this week because services inflation (a key determinant behind Bank of England decisions over interest rates) remains stubbornly high at 5.7%. Accordingly, interest rates are likely to remain at 5.25% for the time being