The UK inflation rate has fallen to the Bank of England's target level for the first time in nearly three years, according to data released on Wednesday, raising hopes that the central bank may soon start lowering interest rates.
The data showed that as of May 2024, the UK Consumer Price Index (CPI) rose by 2.0% year-on-year, in line with expectations and down from 2.3% in April, marking the slowest pace since July 2021.
On a monthly basis, the CPI rose by 0.3% last month, below the forecast of 0.4% and consistent with the previous month's increase.
The Office for National Statistics stated that the biggest downward factor contributing to the monthly change was the decline in food prices, which fell this year compared to a rise at the same time last year. The largest upward factor came from car fuel prices, which rose slightly this year compared to a decline the previous year.
Excluding volatile food, energy, alcohol, and tobacco prices, the core inflation rate fell from 3.9% to 3.5%, also in line with expectations.
This further illustrates the global trend of slowing inflation. Following the release of mild data from the US last week, the UK has also ended a period of persistently high inflation, which peaked at 11.1% in October 2022, the highest level since 1981.
This data release comes ahead of the Bank of England's latest rate decision on Thursday, although the market currently widely expects the central bank to keep rates unchanged for now.
The Bank of England has gradually raised interest rates since December 2021, reaching a high of 5.25% to bring the inflation rate down to the 2% target level.
